Squirrel Money Peer to Peer Lending Review
Updated January 2018
TLDR Review Summary of Squirrel Money
- Lenders (aka Investors): Earn an average return of around 7-9% per annum with peer to peer lending.
- Minimum investment is $500
- Loans are personal and secured or unsecured.
- Squirrel Money's historic bad debt rate to date is less than 1% over five main credit grades (A-E).
- "Loan Shield", a fund which tops up an investor's capital if a loan cannot be repaid by a borrower helps protect investor funds. This is done at no charge to the investor.
- Investors can access their money at any time by selling their loans on the Squirrel Money secondary market, provided another investor is willing to take over the loan. A 1% fee applies to the value of the loan balance.
- Squirrel Money charges a fee of between 1% and 3% of the total capital invested for managing and serving the loan.
- Repayments by borrowers can be withdrawn or automatically reinvested at the desired interest rate.
- Unlike Harmoney, Squirrel Money's loans are 100% funded by individuals. The majority of the money Harmoney lends comes from banks.
- Borrowers: Borrow up to $29,999 (unsecured) or $70,000 (secured).
- Unsecured Loans - $3,000 to $29,999 charge annual interest of 9.95% p.a. to 17.95%.
- Secured Loans - $3,000 to $70,000 charge annual interest of 9.95% p.a. to 16.95%.
- Fees of $250 apply per successfully funded loan < $30,000 and $500 for any loan above $30,000.
- Early repayment permitted without penalty.
In this guide, we analyse Squirrel Money, the second largest peer-to-peer lending (P2P) platform to launch in New Zealand. Since its debut in 2015, the platform has allowed retail investors (i.e. individuals) to lend money to New Zealand consumers seeking personal loans. Offering both secured and unsecured loans, Squirrel Money had lent a cumulative $19m in loans as at December 2017. This may be tiny in comparison to P2P competitor Harmoney (close to $700 m), but there are many benefits to Squirrel Money.
Lenders are enticed by higher returns than anything comparative from a bank or finance company. Borrowers are induced by competitive interest rates, with 8.95% p.a. being the introductory rate for applicants with good credit seeking a two year loan.
Today, Squirrel Money has lent to 1,000+ borrowers on its platform. There are four points of difference between Squirrel Money and other peer to peer lenders:
Squirrel Money charges fees to both lenders and borrowers and does not currently lend any money itself. It acts merely as the middleman by way of providing a platform. This is standard practice for P2P platforms.
In this guide, we look at Squirrel Money for Lenders and Squirrel Money for Borrowers separately to best understand the pros and cons of this investment and borrowing platform.
Lenders are enticed by higher returns than anything comparative from a bank or finance company. Borrowers are induced by competitive interest rates, with 8.95% p.a. being the introductory rate for applicants with good credit seeking a two year loan.
Today, Squirrel Money has lent to 1,000+ borrowers on its platform. There are four points of difference between Squirrel Money and other peer to peer lenders:
- Squirrel Money only provides personal loans. P2P has been popular with businesses, but the management of Squirrel Money has decided at this point in time to only focus on the consumer market.
- Squirrel Money offers secured and unsecured loans. P2P is traditionally lending on unsecured terms, but Squirrel Money offers more attractive interest rates for secured loans.
- Squirrel Money offers a loan protection ("Loan Shield") to help protect investors. Squirrel Money's platform builds up a loan protection fund, contributing on average 2% of every loan repayment. With bad debts expected at a little over 1%, Squirrel Money uniquely offers some protection for investors should unpaid loans turn into bad debts. Squirrel Money can offer more accuracy in expected investor returns given the reduced chance of bad debts lowering an investor's capital.
- Squirrel Money offers a secondary market for loans, allowing a loan to be sold to other investors if the original investor wants to access their money and another investor is willing to take over the loan. All other P2P platforms prohibit this, so the only option is to wait for the capital and interest to be repaid by the borrower gradually over the duration of the loan.
Squirrel Money charges fees to both lenders and borrowers and does not currently lend any money itself. It acts merely as the middleman by way of providing a platform. This is standard practice for P2P platforms.
In this guide, we look at Squirrel Money for Lenders and Squirrel Money for Borrowers separately to best understand the pros and cons of this investment and borrowing platform.
Squirrel Money Review: Lenders
Whilst providing its own risk profile, investing through Squirrel Money offers an another alternative to putting money in a term deposit, corporate bond or an investment in the share-market. The specs are simple - you lend your money directly to other Kiwis looking to borrow, for a 2 to 5 year period.
The most common loan purpose is personal debt consolidation, but a review of the loan requests on any given day will show a diverse range of reasons for borrowing. Loans usually range from $3,000 to up to $70,000 and interest rates charged to the borrower fall between 8.95% and 16.95% (secured loan) and 9.95% and 17.95% (unsecured loan) with the exact figure depending on a borrower's credit risk.
The platform is not without its risks and rewards, which we discuss in detail below.
The most common loan purpose is personal debt consolidation, but a review of the loan requests on any given day will show a diverse range of reasons for borrowing. Loans usually range from $3,000 to up to $70,000 and interest rates charged to the borrower fall between 8.95% and 16.95% (secured loan) and 9.95% and 17.95% (unsecured loan) with the exact figure depending on a borrower's credit risk.
The platform is not without its risks and rewards, which we discuss in detail below.
Squirrel Money Investor Returns
Squirrel advertises returns up to to 8.89%+ per annum net of investor fees.
Who is your money lent to?
Squirrel Money loans to only qualified and creditworthy borrowers. Specifically:
Unlike Harmoney or other P2P platforms, investors are not presented with individual loan requests. Instead, Squirrel Money allocates loans automatically, with money placed with borrowers at a range of interest rates depending on the individual risk profile.
Who is your money lent to?
Squirrel Money loans to only qualified and creditworthy borrowers. Specifically:
- Borrowers must be over 18 years of age, have good credit history and the ability to service the loan and be a New Zealand resident.
- Each loan is classified within groups "A" to "E", depending on the individual’s income and credit risk.
Unlike Harmoney or other P2P platforms, investors are not presented with individual loan requests. Instead, Squirrel Money allocates loans automatically, with money placed with borrowers at a range of interest rates depending on the individual risk profile.
Squirrel Money Default Rates and the Loan Shield Scheme
Squirrel Money launched in late 2015 and is a relatively young platform, so the default rate data doesn’t take into account much more than 2 years of transactions. To date, the overall default rate sits at 0.8% across all loans. This low number is however a life-to-date percentage rather than an annual figure. It is a little distorted by the relatively young age of the Squirrel Money loan book. The default rate will change in time as the Squirrel Money loan book matures. Squirrel continues to enhance its credit decision making process as it is able to analyse more data from its loans.
But, the level of bad debts is less of a risk factor as Squirrel Money offers something unique to the P2P market - a reserve fund called "Loan Shield". Loan Shield has (to date) protected 100% of every dollar invested in the platform. Loan Shield builds up a loan protection fund, contributing on average 2% of every loan repayment. With bad debts currently below 1%, Squirrel Money has some funds set aside if unpaid loans turn into bad debts.
While borrowers are graded A-E depending on their risk profile, Squirrel Money actively invests in a range of loans over a range of dates on your behalf.
But, the level of bad debts is less of a risk factor as Squirrel Money offers something unique to the P2P market - a reserve fund called "Loan Shield". Loan Shield has (to date) protected 100% of every dollar invested in the platform. Loan Shield builds up a loan protection fund, contributing on average 2% of every loan repayment. With bad debts currently below 1%, Squirrel Money has some funds set aside if unpaid loans turn into bad debts.
While borrowers are graded A-E depending on their risk profile, Squirrel Money actively invests in a range of loans over a range of dates on your behalf.
Squirrel Money Borrowing Volumes
The amount a platform lends is important for two principal reasons:
Cumulatively, Squirrel Money has lent $19m since launching in 2015.
- Credit Modelling: The more Squirrel Money lends, the more data it has to build its credit processes and report to investors. Late 2015 to 2018 is a short period for credit assessment data collection, and as more loans are issued Squirrel Money gains more experience in evaluating credit risk.
- Higher investment opportunities: The more borrowers, the more funding opportunities for investors. The more the platform lends, the greater the probability of new lenders available to fulfill future loans and/or purchase existing loans on the secondary market.
Cumulatively, Squirrel Money has lent $19m since launching in 2015.
Squirrel Money Loan Security
Squirrel Money offers its borrowers both secured and unsecured personal loans. The average value of a loan across all risk categories is $13,500 (unsecured) and $23,500 (secured). The principal risk is a large number of borrowers defaulting on their loan commitments, resulting from negative economic conditions and/or poor credit assessment by Squirrel Money.
Squirrel Money aims to help protect lenders in three principal ways:
Squirrel Money is in its infancy as a lender. With just over 24 months of data as at January 2018, the platform is still learning.
Squirrel Money aims to help protect lenders in three principal ways:
- Credit assessment - Squirrel Money claims to have implemented appropriate systems and processes for determining the suitability of a borrower and his or her ability to afford loan repayments.
- Security on loans - Security for secured loans generally ranges from motor vehicles to some form of property for the larger loans.
- Loan Shield fund - Squirrel Money has established a provisional fund to help protect investors from credit losses of up to 2% over its entire loan book.
Squirrel Money is in its infancy as a lender. With just over 24 months of data as at January 2018, the platform is still learning.
What if a borrower doesn’t repay a Squirrel Money loan?
If a payment fails, Squirrel Money charges a dishonour fee (to cover its own credit management expenses) and penalty interest whilst the loan is in arrears (which is ceded into the reserve fund). Squirrel Money then contacts the borrower to ask for payment – in most cases the payment is promptly made. If not, Squirrel Money will continue to follow up with the borrower. If three repayments fail, Squirrel Money reserves the right to engage with its external debt collection agency to take over the collection of the loan.
Loan shield kicks in immediately on repayment default i.e. if an expected repayment is not received, the reserve fund will step in and pay the investor both principal and interest, provided there are sufficient funds available. Squirrel Money's collections team will get in touch with the borrower immediately to attempt to rectify the situation and when/if payments are caught up, the reserve fund is repaid.
If the borrower has not arranged for regular repayments of the outstanding debt within 90 days, they are sent to an external debt collection agency. Following feedback from the external agency, the collections team will decide on the next course of action e.g. proceedings and/or write-off.
All costs associated with the collection of the loan are paid by Squirrel Money or the borrower and not the lender. This includes debt collection, legal fees and debtor management. You can read more about the investing process here.
Because of Loan Shield, you will not be notified if a borrower’s loan goes into arrears and/or is written-off. This is because the fund is used to pay back the investors.
Squirrel Money will only need to notify investors if the Loan Shield fund is not sufficient to repay defaulted loans. In such circumstances, all investors would, in the first instance, receive a haircut on their interest repayments until the reserve fund is replenished. Only in the case that the reserve fund cannot be replenished using future interest repayments alone would investor principle be at risk. Currently Squirrel Money is putting aside 50-75% above the expected bad debt rate to reduce the likelihood of such an occurrence.
Loan shield kicks in immediately on repayment default i.e. if an expected repayment is not received, the reserve fund will step in and pay the investor both principal and interest, provided there are sufficient funds available. Squirrel Money's collections team will get in touch with the borrower immediately to attempt to rectify the situation and when/if payments are caught up, the reserve fund is repaid.
If the borrower has not arranged for regular repayments of the outstanding debt within 90 days, they are sent to an external debt collection agency. Following feedback from the external agency, the collections team will decide on the next course of action e.g. proceedings and/or write-off.
All costs associated with the collection of the loan are paid by Squirrel Money or the borrower and not the lender. This includes debt collection, legal fees and debtor management. You can read more about the investing process here.
Because of Loan Shield, you will not be notified if a borrower’s loan goes into arrears and/or is written-off. This is because the fund is used to pay back the investors.
Squirrel Money will only need to notify investors if the Loan Shield fund is not sufficient to repay defaulted loans. In such circumstances, all investors would, in the first instance, receive a haircut on their interest repayments until the reserve fund is replenished. Only in the case that the reserve fund cannot be replenished using future interest repayments alone would investor principle be at risk. Currently Squirrel Money is putting aside 50-75% above the expected bad debt rate to reduce the likelihood of such an occurrence.
Withdrawing Squirrel Money Funds
Investors (i.e. lenders) have the flexibility to get early access to their invested money using the secondary market option on the Squirrel Money platform, unique to P2P lending in New Zealand. There are fees involved however. An investor will be charged 1% of the loan balance transferred, up to a maximum of $50 per investment. The fee will be deducted from the net proceeds from the money received from the transfer. The success of getting money back on the secondary market depends on the number of investors available to buy the existing loans. If no willing Investors are available, the original Investor may not be able to transfer their interests in a loan and may be required to remain invested in that loan for its full term.
Squirrel Money: Lending Conclusion
- Squirrel Money offers a unique opportunity for New Zealanders looking for diversity investment.
- Squirrel Money may be #2 in size to Harmoney, but it does offer a number of benefits such as loan protection, secondary market investment redemption and passive investment
- Returns on investment hover around 7-9% after fees
Squirrel Money Review: Borrowers ($3,000 to $70,000)
Squirrel Money’s borrowers are historically individuals wanting to borrow money to repay debt or finance home improvements. Squirrel Money sets out a strict application process - only individuals who meet the following criteria can borrow from the platform:
Assessments are made fairly quickly, and if your loan is approved you have 30 days to accept it. You will be assigned a credit grade which ultimately decides the interest rate on the loan. The better your credit grade (i.e. A to E), the lower the interest rate. Squirrel Money offers a fixed rates range for unsecured and secured loans. Specifically:
- Be at least 18 years old,
- Be able to afford the loan you are applying for,
- Provide identity confirmation with either a valid New Zealand Driver’s License or a valid New Zealand Passport,
- Provide bank statements for the last three months
- Report acceptable credit scores from the two credit agencies utilized by Squirrel Money
- You’ll need to list all income sources, your assets (e.g. house, investments, savings etc.), liabilities (e.g. credit cards, personal loans etc.) and your mortgage or rent expenses (separately from liabilities).
Assessments are made fairly quickly, and if your loan is approved you have 30 days to accept it. You will be assigned a credit grade which ultimately decides the interest rate on the loan. The better your credit grade (i.e. A to E), the lower the interest rate. Squirrel Money offers a fixed rates range for unsecured and secured loans. Specifically:
- Unsecured Loans - $3,000 to $29,999 charge annual interest of 9.95% p.a. to 17.95%.
- Secured Loans - $3,000 to $70,000 charge annual interest of 9.95% p.a. to 16.95%.
- If you accept a loan, you'll be charged a $250 fee (for unsecured) or $500 (for secured) which is added to the loan total.
Squirrel Money Interest Rates
When a loan application is approved, it is assigned a "grade" with a corresponding interest rate. Squirrel Money currently offers the following interest rates for secured and unsecured loans:
Benefits of Squirrel Money
A major benefit of borrowing through Squirrel Money is that it's 100% managed online without paperwork. Decisions are made quickly, with a personalised interest rate which takes into account your credit history, income and assets.
Another benefit is the zero penalty for paying loans off early. This differs from other personal loan providers, and early repayment is very common on the Squirrel Money platform - around 35% of loans are repaid early, and 23% have been repaid within the first 12 months.
Have the best chance of having a loan application accepted by being honest
The speed and success of a loan being accepted will come down to how much you wish to borrow and your financial situation and credit history. Providing as much detail as possible will aid the assessment and ensure the best outcome. Getting a loan you cannot afford is detrimental to everyone concerned.
Another benefit is the zero penalty for paying loans off early. This differs from other personal loan providers, and early repayment is very common on the Squirrel Money platform - around 35% of loans are repaid early, and 23% have been repaid within the first 12 months.
Have the best chance of having a loan application accepted by being honest
The speed and success of a loan being accepted will come down to how much you wish to borrow and your financial situation and credit history. Providing as much detail as possible will aid the assessment and ensure the best outcome. Getting a loan you cannot afford is detrimental to everyone concerned.
Squirrel Money: Borrowing Conclusion
- Squirrel Money offers a no-obligation quote for a loan, and the process is easy to follow and done online.
- Any potential borrower can (usually) get a "yes" or "no" from Squirrel Money within 24 hours, and if it's a "yes" they'll get an interest rate specific to their application.
- Borrowers can compare the Squirrel Money offer with that of others as it's valid for up to 30 days.
- There is a $250 application fee which is added to the loan.
- Repayments work like any other debt, and there is a credit team to talk to if the borrower falls behind or needs to make a hardship application.
Squirrel Money Fees – How fees are charged to borrowers and lenders
Squirrel Money is not a lender, it is a platform and does not receive interest income from borrowers. Instead, it earns fees from both borrowers and lenders. None of the fees collected are paid to lenders.
Revenue from Borrowers
Revenue from Lenders
Revenue from Borrowers
- Each borrower pays a $250 fee for unsecured loans under $30,000 when they receive their funds. Borrowers over $30,000 pay a $500 fee.
- A late payment or failed payment levies an overdue fee ($25 every month) and dishonour fee ($15 per transaction) respectively.
- Late penalty interest rate: If a borrower misses a payment and the loan arrears remains unpaid after 5 days, the loan will begin accruing penalty interest at 5.0% p.a. above the normal interest rate.
- Secured loan borrowers also pay $150 to discharge the security used for the loan when it is fully repaid.
Revenue from Lenders
- Retail lenders (i.e. individuals investing in Squirrel Money) pay a "Service margin" – this is up to 3% p.a. of the loan balance and is deducted from gross loan repayment received from the borrower. The percentage depends on the credit risk of the loan, with the annual fee for each category set at 0.95% (A), 1.95% (B), 1.95% (C), 2.95% (D) and 2.95% (E).
- Secondary market - if you wish to redeem your investment before the loan is repaid, Squirrel Money charges 1% of the balance transferred to a new investor (up to a maximum of $50 per investment)
- Loan Shield helps protect investors. It’s a fund paid 100% by borrowers to provide for bad debt losses and loan arrears. This is for the benefit of investors if loans default. Squirrel Money reserves the right to assign up to 100% of interest payments received to top up the Loan Shield fund if an unexpected number of borrowers default on their loans.
5 Squirrel Money Investor Must Knows
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Your money can be withdrawn early (with a fee)Squirrel Money's loan terms are usually 2 to 5 years in length, but if you do find yourself in a position of wanting to withdraw your investment you can, provided there is another investor willing to take over the loan. Squirrel Money charges a 1% fee (up to $50) for the task of selling your loan investment to another lender and is the only P2P lender that provides this facility. This option provides liquidity to investors - more details on the how the secondary market operates can be read here. To date, all loans entering the secondary market have been picked up by other investors.
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Loan Shield helps reduces the impact of lossesSquirrel Money provisions for the non payment of a loan at around 2%. The fee is part of the interest rate a borrower pays. In 2018, the fund stood at $250,000+ on a $12m active loan book (around 2%) with a historic bad debt rate of <1%. Squirrel Money actively manages its loan book and can increase the fund by apportioning interest received if required. The company's management discussed the loan book with moneyhub when writing this review and anticipate the chance where bad debts exceed the Loan Shield fund, whilst not impossible, to be low. If credit events in the New Zealand and/or global economy cause the reserve fund to be fully depleted, Squirrel Money's policy in such a situation is to reduce interest payments to investors and divert the money to Loan Shield to replenish the reserve fund.
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Repayments can be automatically withdrawn or re-investedAs loan repayments are made monthly by borrowers, a typical lender will usually see a positive balance in their account. This can be automatically transferred to your bank account, or re-invested into new loans when the amount reaches multiples of $25.
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Squirrel Money doesn't share ANY borrower informationThe investor doesn’t see any details about the loan(s) they are investing in. The investor simply selects the term of their desired investment and the interest rate that they would like (within the range of Squirrel Money's suggestion). As the reserve fund/Loan Shield functions to absorb arrears/defaults, an investor is effectively investing in the loan book rather than an individual borrower as such.
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Individuals, Trusts and Companies can all investment in Squirrel MoneyThere are no exclusions, and the platform is the same regardless of the
investor profile although investor registration steps differ slightly between individuals and companies or trusts. |
