So you’ve got your credit score, now what? Well, if you have an excellent or very good credit score you might find that you’re starting to be offered better rates, especially on personal loans.

Many personal loan providers use so-called risk-based pricing, which basically means that the less ‘risky’ they think you are, the lower the interest rate they might offer you. The flip-side of course is higher rates for people they perceive as higher-risk.

One of the challenges as a borrower is that it is hard to know up-front how you are viewed and what your rate is going to be, since for many products you will only find out after you have applied for a loan. The good news is that it is becoming much more transparent in Australia, especially with the recent introduction of peer-to-peer (P2P) lending.

Peer-to-peer lenders generally use a credit score as part of their assessment process and are up-front about what their rates are for borrowers with a good, average or not so good credit score. And of course an excellent score could get you a much lower rate!

It sounds complicated but basically most peer-to-peer lenders, such as Ratesetter, SocietyOne and MoneyPlace use web-based software platforms to connect people who want to borrow money, with people who want to lend or invest money. The key difference here is people, it could be a person borrowing money from one or a number of other people. The technology effectively allows the parties to come together anonymously, assess the credit risk, work out the interest rate and payment schedule, and then facilitate the lending and repayments.

This focus on technology and cutting out the traditional infrastructure and legacy operations of a traditional bank allow these lenders to be very competitive whilst also offering something to people looking to lend or invest.

Peer-to-peer lending has caught on in a big way overseas in the US, UK and many other countries and it is expected to be big here too. At Credit Savvy we are really excited to see these new ways of approaching things and especially when they put more power into the hands of the people. It’s what we’re all about too!

If you want to compare personal loans from peer-to-peer providers, head to the Credit Savvy comparison site to see what deals are out there.

 

What do you think about risk based pricing and peer-to-peer lenders? Let us know below.

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