Peer-to-Peer Lending vs a Private Loan for a Property-Secured Request

Key takeaways

• Peer-to-peer lending draws on many investors through a managed investment scheme; a private lender lends its own or a private fund's capital.
• Peer-to-peer platforms tend to run standardised credit policies; private lenders tend to decide deal by deal and take more unusual security.
• Peer-to-peer property loans are often 1 to 3 years with monthly payments; private loans are often under 2 years and interest-only, sometimes prepaid or capitalised.
• Neither is automatically cheaper - in the worked example below, the cheaper option changes with how long you keep the loan.
• Both lend against the security and the exit, so the valuation and a credible exit decide most offers.
• Check the licence behind the platform or lender and read the default, early repayment and extension terms.

Where does the money come from in each case?

Peer-to-peer lending. Investors put money into a platform's fund or choose loans on its marketplace. That pooled money sits in a managed investment scheme - ASIC's managed investment schemes page describes schemes as pooled investments run by a responsible entity, with investors having no day-to-day control. The platform assesses each loan under its credit policy, and investors earn the interest borrowers pay. business.gov.au calls this debt-based crowdfunding.

A private loan. A private lender may be a fund with professional or wholesale investors, a family office, a syndicate of investors who back individual deals, or a company lending its own capital. Some private lenders also run managed investment schemes, so the line can blur; the practical difference is that a private lender usually has more discretion to say yes to an unusual deal, and prices that discretion.

For you as the borrower, the source of funds shows up in three places: how standardised the credit policy is, how flexible the loan structure is, and how dependent the lender is on new investor money to keep lending. Our guide to private lenders and banks covers the private side in more depth.

How do peer-to-peer lending and a private loan compare side by side?

General patterns only - individual platforms and lenders vary.

One thing the table deliberately leaves out is timing. Both depend on a valuation, documents and a credit decision; choose a lender on its terms, not on a promise about how soon it will settle.

How do security and LVR differ?

Peer-to-peer platforms lending on property usually work to a written matrix: maximum LVR by property type and location, minimum and maximum loan sizes, acceptable postcodes, and whether second mortgages are allowed at all. If your deal fits the matrix, the outcome is predictable. If it does not - a rural property, a mixed-use building, a title with a caveat already on it - the answer is often a straight no.

Private lenders tend to start from the property and the exit and build the structure around them: a first mortgage over one property and a second over another, a caveat for a very short loan, or interest capitalised so a development site does not need servicing. Our comparison of a caveat loan and a second mortgage shows two of the structures private lenders use that most platforms do not.

In both cases, LVR is measured on the lender's valuation and the gross loan, including any fees or interest added to it. A forced-sale view of the property drives the limit, so the more saleable the property, the closer the two lender types tend to be.

What does the cost look like on the same request?

For illustration only, take a $600,000 loan against a property valued at $1,000,000 (60% LVR), interest-only and paid monthly in both cases. The peer-to-peer offer is 9.9% a year with a 2.5% origination fee and a 1% fee if repaid in the first 12 months; the private loan is 11% a year with a 2% establishment fee, a 12-month term and a 1% fee to extend for another 12 months. These are examples, not offers.

The private loan wins in this example if the sale settles early; peer-to-peer lending wins if the loan runs a year or more. Change any fee and the crossover moves, which is why you should model your own expected term - and a late one. The bridging finance calculator handles interest-only loans with a defined exit, and our breakdown of what private lending costs lists the fees to ask about.

When does peer-to-peer lending fit a property-secured request?

• The property is standard and saleable: a house, a townhouse or a well-located unit or small commercial building.
• You want a term of one to three years, rather than a short bridge.
• You can show the income to pay interest monthly, or to amortise.
• Your documents are tidy: financials, BAS, title and leases ready to go.
• You prefer published, predictable terms over a negotiated structure.

Peer-to-peer lending also suits borrowers who want to know the fee schedule up front, since platforms tend to standardise it. Ask what the early repayment terms are if your exit could arrive early.

When does a private loan fit better?

• The security is unusual: rural land, a development site, mixed use, or several properties together.
• You need a second mortgage or caveat behind an existing loan.
• The loan is a short bridge to a known event - a sale, a settlement, a refinance.
• You cannot service monthly and need interest prepaid or capitalised.
• Your credit history or structure (trusts, multiple companies) falls outside a standard policy.

Private lenders charge for that flexibility, and their short terms make the exit critical. Our guide to exit strategies for short-term loans sets out what lenders expect to see.

What should you check with either option?

Who the lender is. The name on the loan agreement, its licences, and how it is funded. AFS licences and credit licences can be checked on ASIC's registers.

How the funding holds up. Peer-to-peer and many private lenders depend on investors. Moneysmart's private credit guide warns investors that withdrawals from private credit investments may be restricted or delayed - a reminder that a lender reliant on investor inflows may not always be able to offer a top-up or an extension when you want one.

The default terms. Default interest, enforcement costs and the notice the lender must give before it acts. Our guide to whether private lenders are safe and regulated covers the rules for business-purpose loans.

The exit terms. Early repayment fees, minimum interest, discharge fees and extension pricing, in writing before you sign.

What will each lender ask you for?

The paperwork overlaps, but the emphasis differs. A platform working to a standard policy needs every box ticked; a private lender reads the exit evidence hardest.

Preparing the full set once, before you post a request, lets you put the same file in front of both lender types and compare the answers fairly.

How do you compare real offers?

Put the same request in front of both types of lender and compare like for like: gross loan, cash in hand, rate, every fee, term, repayment type and the cost if the loan runs three or six months longer than planned.

When you are ready, post one property-secured request on ADS from $100,000, and 200+ verified lenders and brokers - peer-to-peer platforms, private lenders, non-banks and brokers - can ask about it. Speak to a licensed credit adviser before you sign.

Frequently asked questions

Is peer-to-peer lending a type of private loan?

Broadly yes - both are private credit, lent outside the banking system. The difference is the funding: peer-to-peer lending pools many investors' money through a platform, usually in a managed investment scheme, while a private lender typically lends its own capital or a private fund's. In practice, platforms run more standardised policies and private lenders decide case by case.

Which is cheaper, peer-to-peer lending or a private loan?

It depends on the term and the fees. In the illustrative example, the private loan cost less if repaid at month 9, but peer-to-peer lending cost less at 12 and 24 months, because of different rates, fees and early repayment terms. Compare total cost over your expected term and over a late-exit term.

Will a peer-to-peer platform take a second mortgage?

Some do, many do not. Platforms that lend on property often restrict themselves to first mortgages with standard LVR limits. Second mortgages and caveats are more common with private lenders, who price the extra risk of ranking behind another lender and usually need the first lender's consent.

Can I refinance a private loan with peer-to-peer lending?

Often yes, if the property and your documents fit the platform's policy. A peer-to-peer loan with a longer term and monthly repayments can be a step between a short private loan and a bank refinance. Ask the platform early, because its valuation and credit process will need to finish before your private loan matures.

Are peer-to-peer lenders regulated?

The funding side usually is: platforms that pool investors' money generally operate managed investment schemes under an AFS licence, and registered schemes need a responsible entity. Lending to businesses for business purposes generally sits outside the National Credit Code, so a borrower's main protections are in the loan contract.

Related reading

• Private Lenders vs Banks: When Private Finance Makes Sense
• What Private Lending Actually Costs in Australia
• Non-Bank Lender vs Private Lender: What Is the Difference?

Sources

• Managed investment schemes — ASIC
• Crowdfunding (debt-based crowdfunding and peer-to-peer lending) — business.gov.au
• Search ASIC registers — ASIC
• What is private credit — ASIC Moneysmart