In Canada, there are plenty of different ways you can access consumer credit, such as through an online platform or otherwise. Not only have the banks and credit unions made money more accessible with online applications but there’s also the addition of fintech companies and other private lenders.
These companies specialize in lending money through online loans and offer funds to those who need funds sooner than the banks can provide or don’t have the qualifications to get approved by the banks. Along with these lenders, you can use peer-to-peer lenders (P2P) to get your desired loan.
How Peer-to-Peer Lending Works
Just like what it sounds, P2P allows you to borrow money from anonymous Canadian investors instead of traditional lenders. Basically, you’ll get the application completed online through a P2P lending network. You will then be anonymously matched with a lender to get you approved for a loan. It’s an alternative form of lending that helps you find the most competitive rates without applying to multiple different places.
When you use a P2P platform, you’re likely borrowing money from different Canadian investors who are looking to loan out their money and earn interest on the return. The great thing about it, though, is that you never have to interact with the lender directly, and they’re still considered private loans. Your loan payments are made through the lending program, which will include any interest.
That said, you may not receive the full financing that you’re requiring. There are still stipulations that you need to meet, just like you would with traditional lending institutions.
Best P2P Lenders in Canada
When it comes to P2P lenders, there are a few large platforms in Canada. These platforms help match you to the best anonymous lender and help borrowers get the funding they need a little bit easier.
Lending Loop
Lending Loop is a Canadian lending site that allows both investors and lenders to apply online. This site is specifically designed for small business owners and processes loans between $1,000 and $500,000. They have simple repayment plans, and you can pay off any of the loans early with no prepayment penalties. They don’t have any specific terms listed, but they do offer interest rates ranging from 4.96% to 24.93%.
Lending Loop isn’t a new site either; the Lending Loop team has actually been around since 2014. They are Canada's first P2P lender for small businesses and are regulated throughout all of Canada, even though they’re based out of Toronto.
Since Lending Loop is a regulated site, borrowers need to meet stipulations. Borrowers are required to have minimum eligibility criteria that include an income of at least $100,000 and a credit score of at least 600 or higher. Once lenders have been approved for the service, they have options on who they lend to. Still, they can also preselect their preferences and be registered for the auto loan program, which will automatically invest for you.
GoPeer
GoPeer loans work a bit differently from Lending Loop. Instead of offering business loans to Canadians, they offer unsecured personal loans with rates starting at just 8% APR. While they don’t advertise minimum loan amounts, they do offer unsecured loans going as high as $35,000.
How it works with GoPeer is you start by filling out the online application. Once that’s done, lenders will have the opportunity to fund your loan, and you’ll be presented with the offers. From there, you can select the best loan option that works for you. That said, though, there are some requirements that you need to meet in order to apply. You must:
- Be at least 18 years old
- Have a minimum annual income of $35,000
- Have a minimum personal credit score of 600
- Have a Canadian bank account
- Have been a Canadian resident for a minimum of 3 years
Once you have applied and met these requirements, you should receive your loan offers within 24 hours. Once you’ve selected a loan, you will be required to pay origination fees, but that’s the only charge. You can pay the loan early at any time with no penalties.
While Reddit is more commonly known as a discussion website in Canada, there is a section of it known as a subreddit that’s called r/borrow. R/borrow is very different from goPeer and Lending Loop, though. Unlike these sites, r/borrow only offers short-term loans up to $1,000. Unlike the other sites that require credit checks and have stipulations, r/borrow doesn’t. The only real requirements you need for a P2P loan with Reddit are that you must be a member for 90 days and have 1000 or more karma points before you can request a loan.
Types of Peer-to-Peer Loans in Canada
As you can see from these three different types of peer-to-peer lending in Canada, there are plenty of different types of P2P loans. They don’t have to just be used for businesses. You can also get:
- Personal loans
- Auto loans
- Debt consolidation loans
- Home improvement loans
No matter the reason you need the loan, though, P2P loans can help you get the funding that you need when you need it.
P2P Lending and Credit
While P2P lenders do have credit requirements, they’re often much lower than that of other lenders. This allows those with bad credit and lower credit scores to apply for these loans and receive the funds that they need at a competitive interest rate. While this rate may be higher than that of banks, it’s less than many other loans from lenders that specialize in bad credit loans.
Investing in Peer to Peer Lending
The reason that many everyday Canadian investors choose to invest in P2P lending is to diversify their portfolios. It’s pretty simple to invest in and offers a pretty high return on investment. Depending on the platform you’re investing with, there may be a minimum investment, and just like with any form of investment, there’s always a risk. In this case, the risk of P2P lending is if the borrower defaults.
Since the Canadian government doesn’t protect these funds as they would be by a traditional financial institution, you could end up losing your money as a lender. However, if you, as everyday Canadians, do end up taking the risk of peer-to-peer lending, you could end up with a significant profit.
Profits from P2P Lending
The profits from peer-to-peer lending can be higher than many other forms of investing. The median return on a P2P loan is between 4.7% and 10.3%. Your return on your investment on the loan can be relatively fast as well. It all depends on the loan terms and if the borrower makes repayments early and takes advantage of the no-repayment penalty. The service fee of a P2P lender is usually around 1%, with fees of only between $5 and $25. These are relatively low.
One thing you have to remember with this form of investment is that you can’t cash out a lump sum at any time that you want, like you would with savings accounts. Your funds will be tied up into the loan until it’s paid off in full. With other investments, if you need the funds, you can access them at any time you like. You should heavily consider this before deciding whether or not you want to invest.
Is P2P Lending Legal in Canada?
In short, P2P lending is legal in Canada. That said, it’s regulated differently depending on the province. In some provinces, these peer-to-peer lending platforms are required to register as securities dealers with the Canadian Securities Administrators. In others, they’re subject to lending regulations.
However, the investors aren’t protected by the Canada Deposit Corporation as they would be with a traditional investment from traditional financial institutions. This means there are actually more risks involved to the lender than there are to the borrower.
Things Peer-to-Peer Lenders Look For Before Approval
As mentioned, before you can get approval through P2P lending platforms, which aren’t as strict as a traditional lender, there are some other factors these lenders will check to verify that you qualify. These factors assess your overall risk tolerance and help determine a loan amount.
Debt to Income Ratio
Your DTI, also known as debt to income ratio, measures how much your monthly income is in comparison to your monthly debt expenses. Because not all expenses are included in this ratio, just debt ones, lenders don’t like this ratio to exceed 50%. This includes the new loan and will affect your fixed monthly repayments if you’re approved.
Credit Utilization
Your credit utilization is based on how much of your allotted revolving credit limit you use in comparison to your total credit limit. Lenders like to see your utilization fall under 35% of your total limit. As this increases, your credit score can be negatively affected.
Credit Score
As we mentioned, most P2P lenders like to see a credit score of at least 600. With a score below this, it can take time to get approval. A good credit score helps lenders determine your financial stability to determine approval amounts.
Credit History
Another thing lenders consider besides your credit score is your credit history. They like to see a good credit mix. This means having more than two different types of credit on your credit file all in good standing. If you do have some negative credit lines and financial history, the more you can get to offset them, the better.
Overview
When it comes to P2P lending, there are a few different options available in Canada. The ones that get some regulatory oversight are goPeer and Lending Loop. They offer personal loans to businesses and those looking for personal loans for other reasons such as home improvements, debt consolidation, and to make large purchases. You can even use them as car loans.
Just like with traditional financing options, you’ll make single fixed monthly payments on your loan until it’s paid off. You can also make early repayments outside of your repayment schedule to save money on interest and become debt-free faster.
As an investor in Peer-to-peer lending, you’ll receive steady monthly payments from the loans you’ve issued unless the borrower defaults. In that case, you’d lose your investment. As long as the borrower continues to make payments, though, you’ll earn interest income that can help offset your other investments and meet your financial goals.
