Can P2P lenders compete on rates in the personal loans market?
PEER-TO-PEER lenders are facing fresh competition from mainstream providers in the personal loans market after First Direct launched a new market-leading rate for larger loans.
The Leeds-headquartered digital bank, which is an offshoot of HSBC, is advertising an interest rate of three per cent for customers looking to take out loans ranging between £15,050 and £30,000.
The offer will be available until early November, and is only available to existing First Direct customers.
In comparison, TSB offers a rate of 2.9 per cent for loans of £7,500 to £25,000, but the First Direct product is currently the most competitive for loans of between £25,001 and £30,000.
So how do the main peer-to-peer lenders compare?
Rates on the main P2P platforms start from around three per cent for borrowers, but their levels of competitiveness vary depending on a number of factors, including the loan size.
Zopa only offers loans of up to £25,000 and its online calculator shows the annual percentage rate (APR) for a borrower at the maximum amount would be 3.3 per cent. However, it does match the First Direct offering based on a loan size of £15,000.
RateSetter offers loans up to £35,000 with a typical APR of 3.9 per cent, while Lending Works advertises 7.9 per cent up to £25,000.
Read more: Demand for personal loans continues to grow
This suggests P2P firms may be more expensive for larger loans, but providers only have to give the advertised rate to 51 per cent of borrowers so the actual product would vary depending on individual applications and credit rating.
P2P lenders do seem to show their strength when it comes to smaller amounts.
The next price point is typically £7,500 to £10,000.
Using online loan calculators, Zopa offers a three per cent interest rate on loans between £7,500 and £10,000, which is slightly higher than the 2.9 per cent offered by TSB, but better than the 3.3 per cent on offer from First Direct. You could also get a personal loan at three per cent at this level from Sainsbury’s Bank.
Borrowers looking for even smaller loans may get better deals using a P2P platform.
A £5,000 loan with First Direct would cost 4.9 per cent annually, compared to 3.6 per cent with Zopa or 3.3 per cent with TSB.
But if you wanted just £2,500, the rate on First Direct jumps to 18.9 per cent or 26.4 per cent with TSB, while Zopa could beat both lenders with its offer of 7.4 per cent.
These are just some examples where a loan calculator was available and other banks or P2P lenders may be better but the end product would depend on the individual application.
There are of course other factors such as how quickly a platform will lend the money and the type of borrower they usually accept, so this shows the importance of shopping around for quotes and not just rate-chasing.
Read more: Consumer debt rises but most aren’t worried