46% of Canadians credit card holders carry some kind of balance each month, and we all know how high the interest rates can get on those. Over time the free market has come up with solutions to provide more affordable lending to borrowers in many parts of the world. In the U.S. and Europe for example, peer to peer lending has grown significantly in popularity as consumers look for alternative means to finance large purchases and pay down high interest debts.
Canada has been lagging behind in this segment of the financial market for some time but just last year a new Vancouver based company became the first to offer a legitimate marketplace lending solution. Grouplend plans to give Canadians a fast and convenient platform to borrow money with lower interest rates than credit cards or pay day loan services. I recently had a chance to sit down with its director of business development, Sean, to learn more about possible opportunities in this space for consumers and investors.
Grouplend leverages the power of technology to bring together creditworthy borrowers seeking loans with investors looking to earn a fair return on their money in an online environment that provides personalized services with competitive interest rates. The company claims to have over $50 million of loan applications already. The way it works is pretty straight forward. Large institutions and accredited investors pool money into a fund which is lend out to borrowers. These borrowers can take out a loan up to $30,000. The term of the loan is fixed for 3 years. The interest rates start from 6.3% and goes up depending on the borrower’s income and financial situation.
I can see this benefiting two main groups of people: consumers who want to consolidate their debt or want to borrow money for a short amount of time, and investors who are willing to risk lending their money to fellow Canadians to hopefully make a return.
The borrowing process is simple. Let’s say you have a line of credit at your bank at 9% and want to lower your rate. You may be able to replace this LOC with a Grouplend loan at a lower interest rate. On the main page of its website, use the questionnaire near the bottom to get your no-obligation personalized quote in a couple of minutes. If you like the conditions and interest rate, you may proceed with your loan application. To verify your identity and credit worthiness you will need to email them some documents like scans of your drivers license, 2 most recent pay stubs from work, etc. If the application is approved it takes as little as 24 hours for the loan money to be deposited into your bank account. You can also set up automatic repayments. After 6 months of on-time payments, you may even apply for a second loan. A process that used to take weeks and meetings with a financial representative at a bank has been condensed into a few mouse clicks and keystrokes. 🙂 There is no origination fee, and you can pay back the loan in full at any time without penalty. This is a great opportunity for borrowers to save money on their high interest debts. Paying less interest means becoming debt free sooner, which frees up more money for retirement savings and investing. 🙂
For fixed income investors who are looking for alternative to bonds Grouplend allows individuals to pool their money into funds that consumers can borrow from. On its FAQ page the website encourages investors to reach out by email if they are interested. Due to regulatory and securities issuance in Canada only accredited investors can invest in Grouplend funds. Generally speaking an accredited investor has to either earn a high salary or have a net worth of $1 million. An employee benefit plan or a trust can also be qualified as accredit investors if total assets are in excess of $5 million.
Today’s world is all about going digital and crowd sourcing to become more efficient. 🙂 I find the start ups for marketplace lending to be an interesting development. Since almost half of Canadians with credit cards hold a balance I expect there to be strong consumer demand for a lower cost, convenient, online loan platform moving forward.
Random Useless Fact:
Use the phrase, “My understanding was…” instead of, “I assumed…” so that other people will merely think you misunderstood something as opposed to being viewed as having hastily jumped to a conclusion based on insufficient evidence.
Article does not address collectivist ic cultural reasons of couple. Likely moving their extended family in to ride on bubble.
Cultural backgrounds play an important role in the housing market that can be easily overlooked. The wife’s parents already live in the Toronto area so they could move into the couple’s house and sell or rent out their old place. They can also help take care of the new baby. I’ve noticed that in general immigrants who come from India are more open to the idea of multiple generations living under the same roof. That’s not true for everyone though, and there are exceptions in every culture. What I think is interesting is that both the husband and wife work in the financial services industry yet they carry a credit card balance over $13,000. 😕 I’m not sure what they were thinking there lol. From a purely financial perspective it would be wise to look at cultural and ethnic trends in the real estate marketplace and decide how to invest based on historical trends. For example, Canada is becoming more culturally diverse and household conditions will reflect that. This is partly why freehold houses are more in demand than condos and apartments. Houses can accommodate more people and can also be renovated to create additional rental units for income, a… Read more »
They are only interested in dealing with Accredited Investors at this time. Just like your good article on investing in farmland with AgCapita I am not welcome to this party either.
Good thing Vanguard will take me money.
Maybe they’ll open up the fund to include contributions from the average, every-day investors in the future. The provincial regulatory bodies require these kinds of companies to deal with accredited and institutional investors only in an attempt to protect the general uninformed population from getting involved in securities with risks they may not fully understand. But rules are constantly changing so I’m hopeful for a change to more accessibility in the future.
Great post.It is Canadian version of Lending club is US.
There is another Toronto based company called Borrowell” https://www.borrowell.com/
I’m looking forward to how big our Canadian platforms can get. Maybe one day they can even branch out into the U.S. market. More competition is good. 🙂
Finally something come up that was really need in market. but i am curious about investing in company portion
was wondering that some USA companies are allow you to invest in them ?? is this company is able to invest in company as investor ??
if you have any idea please let me know .. thanks in advance
I believe this is long overdue as well. A marketplace lending platform is important for a capitalist society to run efficiently without governments directly setting rates and conditions. For now it looks like you can only invest in the funds of Grouplend, if you qualify as an accredit investor. There doesn’t seem to be a way to own shares or a portion of the company itself though. It’s a private corporation like any other. Maybe they will go public one day but for now just investing in the funds and lending your money to people to make a return above government bonds is a good step towards increasing debt based instruments for many Canadian investors and borrowers alike. The USA company you are thinking about is probably NYSE:LC. They have been around for awhile and yes, you can actually own a piece of that company. And you can also make money by becoming a lender of course.