Payment Protect is a repayment waiver for unexpected events that may affect the ability of borrowers to repay their loan, such as involuntary redundancy, disability, terminal illness, or death.
Borrowers can choose to purchase Payment Protect cover when they take out a personal loan through the Harmoney platform. The options are partial cover, which covers death and terminal illness, and complete cover, which also includes redundancy, and disability. Harmoney joint chief executive Brad Hagstrom says Payment Protect offers “peace of mind” to borrowers who choose to use it to protect themselves.
“Peer-to-peer lending is an exciting and innovative way of connecting lenders and borrowers. Borrowers face the risk that a change of circumstance could make it difficult to repay the loan. Harmoney wanted to give borrowers the option of protecting themselves in situations such as losing their job or becoming ill or disabled. Payment Protect comes with an additional cost, so we let borrowers decide if they want to use it or not, and if they do, our lenders cover the repayment in the event that borrowers genuinely can’t meet it.”
Payment Protect is a peer-to-peer waiver product that cuts out the need for an insurance middleman. It is an agreement between the borrower and the lender in Harmoney’s marketplace, for borrowers who want the peace of mind and lenders who are willing to provide it. The borrowers pay the cost of the Payment Protect product monthly, having funded the fee with their loan; the lenders receive the benefit of the fee but also agree to waive either the full amount of the loan or the repayment where there is a genuine claim. Lenders can choose whether or not to invest in loans with Payment Protect cover.
Hagstrom says Payment Protect cuts out the need for insurance and is priced at a discount to equivalent insurance products, while offering benchmark cover and the potential of enhanced lender returns. “For an individual loan, the waived repayments could be greater than the Payment Protect fee earned. However, across a whole portfolio the fee income and additional interest should outweigh any waived repayments and fee costs.”
Benefits for Borrowers
- Provides protection in the case of unexpected events such as death, terminal illness or redundancy
- Offers two different product options: full cover and partial cover
- Payment Protect is optional, giving borrowers choice
Benefits for Lenders
- Enhances yields for loans with Payment Protect attached
- Investors earn interest income on capitalised premium
- Expected to increase returns at a portfolio level
- Potentially lower defaults on loans with Payment Protect as borrowers are not required to make repayments at stressful and high default risk times in their lives.
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