Luxury P2P lending: How does it work?

Peer-to-peer (P2P) lending has been around for over a decade and it has proved a hugely effective form of alternative funding for SMEs.

This is because lenders are able to offer loans to people and businesses where banks and other lending institutions might not. For lenders, P2P boasts considerably better rates compared to the low returns from even the best savings accounts offered by high street banks.

A report by Nesta in 2014 highlighted that the UK?s P2P market has grown quickly ? up 288 per cent from 2013-2014. The rapid expansion of all forms of alternative funding has led to the industry becoming more mainstream; so much so, that the government has backed it with the launch of a new “Innovative Finance ISA”, which allows P2P investors to earn interest tax-free.

Anyone with a mortgage will be familiar with the principal of secured loans. But in the peer-to-peer market, lenders are now offering secured loans which allows people and businesses to unlock the value not of their house, but the luxury goods within it.

For instance, people and businesses can borrow against a wide range of high-value items including gold and silver, jewellery, luxury watches, diamonds, classic cars, art, antiques, luxury handbags, fine wine and musical instruments.

Although it is common in the P2P market that there is no limit to the amount people can borrow (beyond 80 per cent of the value of the assets they are willing to put forward), loans can start from as low as ?500.

Read more about the UK’s P2P market:

• Credit experts give big thumbs up to alternative finance providers
• The legal challenges facing up-and-coming P2P businesses
• The UK’s small business owners expect alternative finance demand to surge

Those providing luxury asset lending have slightly different processes of valuation. Borrowers are asked to send in photographs and descriptions of their assets. In the case of a luxury watch, the valuer will want to know its make, what it is made out of, when it was made and whether it is for a man or a woman.

Based on the valuation, prospective borrowers will typically receive a loan offer within three hours, although as is the nature of the luxury goods market, some items may require a second opinion which may take a couple of days.

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