Today you no longer need to interfere with the bank when you are going to borrow money. With P2P (peer to peer) loans, you apply for private loans from a private lender instead. This generally means lower interest rates for borrowers and allows lenders to invest in an industry where the banks have historically had a monopoly. The two largest intermediaries of private loans in the form of P2P are Brocc and Lendify. In this post, we focus on how Lendify works, both for you as a borrower and lender / investor.
Normally, you apply for a loan from a bank that only makes money if you, as a borrower, prefer to take a large loan with a high interest rate. Peer to peer networks, regardless of industry, are dependent on both parties (in this case lenders and borrowers) feeling that they are getting something out of the network. The system requires a balance to work, a balance that attracts both parties. This is achieved by imposing reasonable requirements on both lenders and borrowers.
Pros and cons of Lendify’s P2P loan
Lendify’s business concept is simply to be a platform or marketplace where borrowers and lenders meet. The lender places demands on low risk, which is one of the reasons why the borrower must be approved in a thorough credit assessment in order to be able to borrow money. Borrowers, on the other hand, have requirements for low interest rates, quick notification and smooth process. However, Lendify is not only a platform, but also offers certain benefits, such as loyalty programs and credit loss funds.
The loyalty program for borrowers means that you are rewarded with lower interest rates the longer you are a customer of Lendify. The only thing that is required is that you do the repayment and pay when you need to.
Credit loss funds are a way for the lender to reduce the risk. This is offered at the so-called Autoinvest service, which is described further down in this text.
P2P loans are a relatively new phenomenon and a common criticism has been that it would take a long time to get the money paid off. This is because the entire loan amount had to be financed by private lenders, which in some cases could lead to long waiting times. However, Lendify guarantees that you will receive the money as soon as your application has been approved, after you have chosen how you want the money paid out. If you as a borrower are looking for fast (and expensive) SMS loans without a credit rating at UC, this is probably not the service for you. As mentioned, P2P loans require both parties to feel secure and this includes requirements on the borrower.
How to apply for a loan through Lendify
The loan application process itself is very simple. You go to Lendify’s website, press Låna in the top menu and fill in the amount, the repayment period you are looking for and information about, among other things, your current income. You then validate the application with social security number, and regular or mobile BankID.
Then your application is handled. This usually takes a couple of hours, whether you send in everyday or weekend. It may be that Lendify needs to check some information with you, which is why it might be good to keep a check on your phone and email after you submit the application.
Should your application be approved, you have the opportunity to log into My pages where you sign the promissory note and choose how you intend to repay the loan and how you want it paid off.
On My pages you can also see the status of your loans, copies of your bills and any discount from the Lendify Rewards loyalty program. My pages are adapted for both mobile and desktop.
Note that your application is not binding. If your application is approved, the offer is valid for 30 days so you have plenty of time to consider the matter. However, a credit assessment is made as soon as you apply.
How to lend and invest
Lending money to others via Lendify should first and foremost be seen as an investment with all that it entails. As a lender, you obviously expect a return on your capital investment and, although the risks are generally very low, you should be aware of them.
With a rough simplification you can say that you act as a bank and lend money to one or more private individuals. You make money, just like the bank, in the form of interest on the amortization and you risk losing money if the borrower is unable to repay. However, Lendify has certain safety nets that minimize the risks, depending on whether you choose to manage your investment entirely yourself or use their Autoinvest service.
Manual investment means that you choose which loan (s) you want to invest in. Then you choose how much you want to invest in each loan. As with any type of investment, it is recommended that you spread the risk by investing in several different types of loans.
Automatic investment, or Autoinvest, is a kind of ready-made package for those who want to invest, but prefer to see Lendify take care of the process. Lendify then distributes your investment on different loans, depending on whether you have chosen Autoinvest Short or Autoinvest Long – the difference between them is that the maximum term of the loans is 5 and 15 years respectively.
The process itself goes much like when you apply for a loan. You click Invest in the top menu and then click Open Account. Here you can also calculate your potential return on the standard Autoinvest Short and Autoinvest Long services.
Credit loss fund instead of deposit guarantee
The deposit guarantee does not apply when you invest via Lendify. If a borrower is unable to repay the loan, or if Lendify goes bankrupt, the financial risk lies with you. Worth mentioning is that Lendify’s credit losses are currently around 1.5%.
If you have chosen to invest with the Autoinvest service, instead, you will be reconciled with a credit loss fund, whose size should always be at least 0.1% of the total loan amount. The fund works so that it pays the difference between the amortization that you may not get paid for a month. The fund gives you as a lender extra protection and reduces the risk. Should the total missing amount not be covered by the Fund, you are still responsible for the financial risk. The fund should thus be seen as a security measure, not a guarantee.
Lendify was founded in 2014 with the aim of being a long-term challenger to the banks by creating a customer-friendly marketplace for borrowers and lenders. In 2018, they reached a milestone of SEK 1 billion in loans disbursed. The same year, the company received much attention when former Finance Minister Anders Borg stepped in as owner. Today, they have the largest marketplace for loans in Sweden.