Luxury P2P lending: How does it work?

What’s the interest?

Dependent upon which P2P lender you use, borrowers can expect, for a £4,000 loan for instance, to pay between 2.5 per cent and 7 per cent interest monthly, with loan terms varying from six months plus.

Regardless of the sum borrowed, set-up fees usually apply, which often covers valuation costs. For loans over £30,000, most lenders offer bespoke pricing.

Pros and cons

The market for luxury asset loans can, however, be a confusing one with lots of players, not all of whom are transparent when it comes to costs, and there are often hidden fees which are not immediately made clear, as they’re buried in confusing small print. There are some providers, though, that do ensure that all costs are made clear from the get-go, so there are no nasty surprises further down the line.

With most financial services, there is a level of risk involved for the lender. But in most cases, as the loan is given against the asset in P2P lending, rather than an individual’s credit rating, the collateral carries no risk, so the loan is secure.

In those rare circumstances when a borrower defaults on their debt, the asset is simply sold to compensate the lender, then any surplus proceeds from the sale (after auction fees and costs have been paid) are returned to the borrower. The benefit of this is a more secure environment for all parties involved.

Rito Haldar is co-founder of Unbolted and Adam Tavener is chairman of the Alternative Business Funding portal (ABF).

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