We all lend in a yellow melon team
...In a land, across the sea, there’s innovative p2p...
The p2p lending market has evolved significantly since it emerged in countries like the US and UK, gaining real traction between 2010 and 2015. This evolution has involved substantial growth, both in terms of the number and type of platforms. In 2015 total p2p lending reached £3.2bn in the UK and €5.43 bn across the whole of Europe. However, growth and evolution has also meant a steady drift away from the original principles of p2p lending, especially in the UK. One major platform is even taking steps to transform it's business into one with a traditional banking licence. Across the channel though, smaller platforms like Žltý melón in Slovakia, are showing how p2p lending can continue to innovate while still operating a 'pure' model of p2p lending. One that is based on individual loan auctions that provide complete transparency and put people in complete control over who they lend to and at what interest rate. Auction based models of p2p lending are built around real communities, where people interact directly with one another to agree the terms of lending. This ‘original’ version of p2p lending ensures both sides get a better deal than with the bank and one that is fair for both sides. Specifically, remaining true to the principles of transparency and putting ordinary people in complete control of their lending activities with growth powered by a true community of people that interact directly with one another, rather than by traditional financial institutions. In the spirit of transparency and innovation, we spoke with Hendrik Bremer in our most recent episode of "A Gentleman's Guide to P2P Lending", who is on the board of Žltý melón. He was able to provide some insights about the latest developments and innovative new products available on the platform. The first of which is a range of loans to help homebuyers, which are structured in a truely innovative way. The approach taken by Žltý melón is to create new loan products that help remove the numerous barriers faced by people when purchasing a new home. This includes being unable to afford the deposit required by a bank when applying for a standard mortgage, an instant loan decision and guaranteed buy back by the real estate developer. The products called "CashFree Housing" and "CashFree Hypo" loans are offered in partnership with major real estate developers and mortgage specialists in Slovakia. The first of these products, the "CashFree loan", helps people finance the cost of their reservation fee for a new build home, eventually rolling it into the mortgage they take out with their bank to complete the purchase. "CashFree Hypo" loans actually help people spread out the payment of their deposit over a period of between 5 and 20 years, allowing them to get a mortgage if they don’t have enough savings at the time of purchase. Banks typically require a deposit of between 20 and 25% of the total house price, which is often more than 20,000 EUR and unaffordable for many (HB: not most) people. This is especially true for first-time home buyers, like in the UK where 35% of millenials are now forced to rely on their parents in order to buy their first home. As well as innovative loans to help people buy a new home, Žltý melón is also helping people that rely on expensive small sum short term loans, of between 100 and 1,000 EUR from non-bank lenders. Again, this is something that is a big problem across the EU, especially in the UK where people on low-incomes are only able to borrow from non-standard lenders who charge interest rates (so called APR = annual paid (interest)rate) that often exceed 100%! These new short term loans are powered by individual people within Žltý melón's active community of investors. They are people who want to lend money fairly at reasonable interest rates, to honest borrowers who simply need a bit of help from time to time in making ends meet. Existing providers of shor-term loans have been subject to extensive criticism for the high interest rates they charge that can trap people in a cycle of debt and borrowing. Žltý melón set out to solve this problem, creating a short-term loan product that is both profitable with a fair return for investors but also allows people to borrow money under fair terms and at a reasonable interest rate. The company has designed the short-term loan in a way that means customers can actually build up their ‘good reputation’ and "credit history track record" with Žltý melón, that will help them access a larger standard loan on the platform in the future. These standard loans can help customers borrow more money at even cheaper rates than with the short term loan, which can then be used to help them refinance any existing debts they have or escape from the high interest loans from other lenders they were forced to rely on in the past.
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