How does asset-backed peer-to-peer lending work?

We’ve discussed peer-to-peer lending in depth on Money Bulldog in the past, looking at both the pros and cons of peer-to-peer lending for those looking to lend money and also for those people who are looking to find a loan. As the peer-to-peer lending sector has continued to grow, new types of peer-to-peer lending and borrowing opportunities have opened up. One of these innovations is the advent of asset-backed peer-to-peer lending. So what is asset-backed peer- to-peer lending and how does it work?

What is asset-backed peer-to-peer lending?

Asset-backed peer-to-peer lending works in pretty much the same way as normal asset-backed lending, but the funds to make the loan come from individual lenders rather than a single financial institution. With asset-backed lending, a loan you take out is secured against a certain asset that you own. One common example of an asset-backed loan is a loan which is taken out using your car as security. Vehicles are not the only kind of asset which can be used to secure an asset-backed loan though. UK online peer-to-peer lenders like Unbolted for example, will allow you to take out a loan which is secured against other valuable assets which you own. Valuable pieces of artwork, jewellery, gold and silver or even classic cars are all examples of the kind of assets that can be used to secure an asset-backed peer-to-peer loan which they mention on their website.

How does asset-backed peer to peer lending work?

If we use the aforementioned UK lender Unbolted as an example, then their website states that due to the fact that an asset is being used as security for the loan, no credit checks are needed when you take out an asset-backed peer-to-peer loan through their platform. You will also not be asked to fill out any lengthy paper work. The first step is to upload a photo of your asset to their website for valuation. You will then receive a loan offer and if you accept the offer, you will then need to send the item which you are using for security off to unbolted, for them to hold as security against the loan. Once the items have been received the funds will be advanced to your account. Once the loan has been repaid, your asset will be returned to you.

What happens if you don’t repay an asset-backed loan?

As we have mentioned in the previous paragraph, the reason that some lenders do not require a credit check with an asset-backed loan is because the loan is secured against an asset of value. This means that if you do not keep up the repayments on your loan, the lender can then sell the asset in order to recoup any lost money. The terms of the asset sale and also the loan terms will differ from lender to lender and platform to platform, so be sure to check out the terms thoroughly before taking out an asset-backed loan to make sure you are happy with the terms and understand the full repercussions of any late or non-payments.

What are the interest rates like on an asset-backed peer-to-peer loan?

The rates available on asset-backed peer-to-peer loans will again differ from platform to platform but they will usually be higher than the interest rates offered on a standard peer-to-peer loan, largely due to the fact that no credit checks are being undertaken.

So there we have it, a brief explanation of what asset-backed peer-to-peer lending is and also how it works.

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One Response to How does asset-backed peer-to-peer lending work?

  1. An interesting idea. I have not come across Unbolted before (or indeed any other asset-backed P2P provider). I have some money invested in Zopa but that is the extent of my P2P experience. I may research these ones a little more to discover a bit more.

    Do you know anything about people’s experiences with such companies? Would be interesting to hear.

    Thanks for the write up of this. Very interesting.
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