Social trends are changing the way we do business on a daily basis. Peer-to-peer services such as Airbnb and Uber are often portrayed in a negative way, but the reality is, they offer something people want and now it’s starting to catch on in the Canadian banking sector.

Our banks are old school when you think about it. Sure we have debit and credit cards, e-mail money transfers and online banking, but when it comes to getting a loan, it’s still a slow process to get approved. Not only that, we get charged an insane interest rate on credit cards so it’s no surprise that peer-to-peer lending is starting to gain some traction.

What is peer-to-peer lending?

“Peer-to-peer lending brings together qualified borrowers and private investors in a reliable and online format.” says Kevin Sandhu, Founder and CEO or Grouplend. “We leverage technology to offer a cheaper, faster and more convenient experience for our customers.” In other words, peer-to-peer lending also knows as “P2PL” or “social lending” is looking to cut out the middleman e.g. the banks.

Borrowers fill out an online application and after a few minutes you’re given a quote. If you decide to move forward and your documents have been verified, you can expect to see funds deposited directly into your bank account within 24 hours.

Does it save you money?

Social lending doesn’t act like a bank; there’s no physical store, nor can you make deposits, since everything is done online, it’s easy for them to pass the savings on directly to consumers.

Rates are unique to each individual borrower but they range from 6.3% – 17.5%, that represents a savings of up to 40% compared to credit cards or other bank products. There’s no set rate for everyone, your individual rate is calculated based on your creditworthiness. The more creditworthy you are, the lower your rate is.

If you’re looking to access cheap credit then a unsecured line of credit, or a home equity line of credit will usually be cheaper. Social lending are loans with a fixed rate and where you pay a fixed amount, this helps you get out of a debt as opposed to picking up more debt. You can pay off the loan anytime you want with no pre-payment penalties.

Peer to peer lending

Is it safe?

There’s always going to be fears but peer-to-peer lending is incredibly safe in Canada. “Our investors (lenders) are passive investors in the loans, meaning they do not see any personal information about our borrowers” says Sandhu. Lenders are only accepted if they are accredited investors and meet regulatory and securities issuance requirements in Canada. There won’t be any loan sharks showing up at your door looking to collect their pay.

As far as your credit score is concerned you don’t need to worry since P2PL companies like Grouplend can have a personalized quote within a few minutes without any credit checks. Since there are zero risks, you might as well get a quote just to compare rates.

What are the drawbacks?

Not everyone can take advantage of peer-to-peer lending, if you have a bad credit score (under 690) you’re not going to get a loan. If you fall into this sub-prime market be aware that lenders that do offer you a loan may be trying to take advantage of your situation.

Currently there’s a lack of regulation in the industry which can definitely be concerning, but this is more of an issue for lenders as opposed to borrowers. Grouplend is one of Canada’s first peer-to-peer lending services, and as more companies come online, expect to see more changes within the industry.

Final word

In Canada, the banks have dominated the lending market, but with the success of other peer-to-peer services it’s only a matter of time before social lending becomes mainstream. P2PL is faster, more convenient and in certain situations more affordable, you might as well get a quote since it doesn’t hurt your credit score.