Lifestyle / 22nd January 2021

Why are Millennials Interested in P2P Lending?

Today’s generation of young people need to think very differently about their financial futures than in the past, and we’re finding a trend where a lot of millennials are flocking to non-traditional investment options like peer-to-peer lending. We explore the basics of P2P lending and its benefits below!

What is peer-to-peer lending?

Peer-to-peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. Websites that facilitate P2P lending have greatly increased its adoption as an alternative method of financing.

Why do millennials prefer P2P lending over others?

More and more consumer-finance start-ups are popping up as the financial and economic landscape continues to shift. Here are a couple of reasons why millennials are riding the wave of this shift:

P2P lending websites connect borrowers directly to investors

P2P lending websites set the rates and terms and enable the transactions. Most of these sites have a wide range of interest rates based on the creditworthiness of the applicant. An investor opens an account with the site and deposits a sum of money to be dispersed in loans. The loan applicant posts a financial profile that is assigned a risk category that determines the interest rate the applicant will pay. The loan applicant can review offers and accept one. The money transfer and the monthly payments are then handled through the platform.

P2P lenders are individual investors who want to get a better return on their cash savings

As a generation that came of age during the financial crisis and graduated from university when jobs were scarce and student debt was high, it’s no wonder millennials aren’t heavily reliant on traditional financial institutions. Not only that, interest rates from traditional banks are currently painfully low, so the option to invest in a TD or in bonds isn’t that appealing to those looking to grow their money.

P2P borrowers seek an alternative to traditional banks or a better rate than banks

More and more young people are choosing to find alternative investment methods that don’t include, or wholly rely upon, traditional banking.

Not only do millennials tend to distrust banks, but they find their services and financial systems to be inefficient and outdated, thus, not applicable to many modern-day situations. As a generation that has grown up in the digital age, young people are inherently more tech-driven than previous generations and are more favourably drawn toward tech-driven industries and services.

The growing demand for P2P lending and the increased share of the younger generation prove the potential for alternative lending in New Zealand. The interest of younger investors in a simple and comfortable source of additional income and the positive experience gained at existing P2P platforms will both have a significant impact on the future development of the industry.