Peer to peer lending– an alternative way to boost your savings

Filled your ISA? Disillusioned with low savings rates? Could peer-to-peer lending be an option for you?

But how exactly does peer-to-peer lending work, and what are the risks involved? Here we explain all you need to know to make the most of your money.

Product information supplied has been provided by each individual brand not MoneySuperMarket

 

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Peer-to-peer lending accounts - Short term access to your money - Ordered by expected annualised rate after fees and bad debt

    • Provider/Product name 30 Day Access Account

      Assetz Capital

      30 Day Access Account

    • Expected annualised rate after fees and bad debt 4.25% Per Annum Gross Return
    • More details

      You lend to:This account is designed to make an actively diversified portfolio of loans in British businesses with realisable security
      When do I earn interest?: Interest (income) is paid monthly
      Can I withdraw money before term ends?: The account charges no fees for withdrawals and access to funds after 30 days’ notice, in normal market conditions
      Provision fund?: Assetz Provision Funding Limited (APFL), a UK Limited Company, has been set up to provide a discretionary Provision Fund linked to identified Assetz Investment Accounts or loans
      How much can I save?: From £1, no maximum
      Founded in: 2013

    • Go to site

    Great for
    Investing in British businesses
    Attractive interest rate of 4.25% per annum gross return
    Automatic inclusion in a separate provision fund to protect investors from income delays or income and/or capital losses on this investment account
    But be aware that
    To lend you must be 18 years or older and a UK resident, with a UK bank account
    Your savings are not protected by the FSCS compensation scheme

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Fixed Rate

      Landbay

      Fixed Rate

    • Expected annualised rate after fees and bad debt 3.54% annualised expected return
    • More details

      You lend to… Landbay only facilitates secured lending against residential buy-to-let mortgages on tenanted properties in England and Wales
      When do I earn interest? Interest accrues within 24 hours of receipt of cleared funds, subject to mortgage investments being available.
      Can I withdraw money before term ends? Yes, redeeming your Fixed Rate loan parts may be possible prior to completion of the fixed term, subject to Landbay being able to reallocate your loan parts to new lenders. Fixed Rate loan parts will be redeemed at the current market rate, which may be higher or lower depending on how rates move in the future
      Provision fund? Yes, losses & late payments are protected by Landbay’s Reserve Fund and Landbay doesn't lend on commercial, bridging or development property loans. This is a discretionary fund derived solely from Landbay's fees and margin.
      How much can I save? From £100, no maximum
      Founded in 2013

    • Go to site

    Great for
    No lender fees - the rate you lend at is the rate you will receive
    Start earning interest within 24 hours of receipt of cleared funds
    Automatic diversification across multiple buy-to-let mortgages with terms of up to 10 years
    But be aware that
    To lend, you must be 18 years or older, a UK resident with a UK bank account
    Your investment is not covered by the FSCS compensation scheme. Your capital is at risk.

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Quick Access Account

      Assetz Capital

      Quick Access Account

    • Expected annualised rate after fees and bad debt Currently 3.75% Per Annum Gross Return
    • More details

      You lend to… The Quick Access Account (QAA) invests in secured loans, made to a wide range of quality UK SME businesses that pass Assetz Capital's credit policy
      When do I earn interest? Interest is paid monthly
      Can I withdraw money before term ends? The Account has been designed to provide very quick access to your cash in normal market conditions. Assetz Capital does not impose any minimum term on your investment and makes no charge if you withdraw your cash. Assetz publishes the recent account access speed and has to date been under 1 second. A substantial cash balance is retained at all times to aid liquidity
      Provision fund? Assetz Provision Funding Limited (APFL), a UK Limited Company, has been set up to provide a discretionary Provision Fund linked to identified Assetz Investment Accounts or loans including the QAA. Please see their Provision Fund page for full information
      How much can I save? From £1 to £100,000 direct investment. Additionally, idle funds in other accounts may also be invested up to a cap of £25,000 per person
      Founded in 2013

    • Go to site

    Great for
    Investors looking for a fair interest rate on peer to peer loans whilst having fast access to their funds in normal market conditions
    Unprecedented liquidity and ease of access, with no fees or reduction in interest rate for requesting access
    Automatic inclusion in a separate, discretionary provision fund to protect investors from interest delays and loss of interest and/or capital with this account
    But be aware that
    To lend, you must be 18 years or older, a UK resident with a UK bank account
    Your investment is not covered by the FSCS compensation scheme
    Quick access to your funds is principally enabled by maintaining high liquidity in this investment account. Assetz Capital publish full details and their 7 day average access time on their website

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Tracker Rate

      Landbay

      Tracker Rate

    • Expected annualised rate after fees and bad debt 3.03% annualised expected return (LIBOR + 2.70% p.a)
    • More details

      You lend to… Landbay only facilitates secured lending against residential buy-to-let mortgages on tenanted properties in England and Wales
      When do I earn interest? Interest accrues within 24 hours of receipt of cleared funds, subject to mortgage investments being available.
      Can I withdraw money before term ends? Yes, You can redeem your loan parts at any time and at no cost, subject to Landbay being able to reallocate your loan parts to new lenders. We typically only require a few days notice to facilitate Tracker Rate redemptions
      Provision fund? Yes, losses & late payments are protected by Landbay’s Reserve Fund and Landbay doesn't lend on commercial, bridging or development property loans. This is a discretionary fund derived solely from Landbay's fees and margin.
      How much can I save? From £100, no maximum
      Founded in 2013

    • Go to site

    Great for
    Short term access to your money if required
    This product tracks at 2.70% above the LIBOR (London Interbank Offered Rate)
    No lender fees. The rate that you lend at is the rate you will receive
    But be aware that
    To lend you must be 18 years or older and a UK resident, with a UK bank account
    Your investment is not covered by the FSCS compensation scheme. Your capital is at risk.
    The total expected rate equals 3.40% pa assuming auto reinvestment of all interest over a 1 year period

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Rolling market

      RateSetter

      Rolling market

    • Expected annualised rate after fees and bad debt 3.70% variable
    • More details

      You lend to… Real people (RateSetter has checked they're creditworthy)
      When do I earn interest? Only once money is lent, though if you select 'market offered rate' this is usually quick
      Can I withdraw money before term ends? Yes
      Provision fund? Yes, £16.3 million as of November 2015
      How much can I save? From £10 to no maximum (although RateSetter may limit the amount an individual can invest in any single market)
      Founded in 2010

    • Go to site

    Great for
    Short term access to your money
    Simple P2P lending. RateSetter match your funds for you - just how a bank operates
    No lender fee applies
    But be aware that
    You can access your money (called 'sell out') at any time so long as there is another lender to take your place
    Your savings are not protected by the FSCS compensation scheme
    To invest with RateSetter you must be aged 18 or over and have a UK bank account

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

Peer-to-peer lending accounts - Short Term 6 Months To 3 Years - Ordered by term

    • Provider/Product name Lending

      Funding Circle

      Lending

    • Expected annualised rate after fees and bad debt 7% variable
    • More details

      You lend to… All types of businesses including limited companies, sole traders and partnerships in the UK (Funding Circle grades their credit rating A+ to E)
      When do I earn interest? Typically, once your money is lent out you receive repayments every month (interest and principal)
      Can I withdraw money before term ends? Yes, you can sell some or all of your loan parts to other investors, for a 0.25% charge on each loan part. There may be some circumstances which prevent loan parts from being sold, for example loans that have had their risk bands ‘downgraded’
      Provision fund? Investors can manage their risk by lending to hundreds of different businesses. You receive all income from the borrower upfront rather than any being allocated into a provision fund for when, and if, a bad debt occurs
      Minimum Investment: From £20 with no maximum

    • Go to site

    Great for
    You can choose each and every individual business you would like to invest in
    If you would like more of a hassle-free solution, you can pre-select the businesses you want to lend to and the rate you're happy to earn and let the Autobid invest for you
    But be aware that
    1% annual fee applies on the money you have lent
    There is no provision fund within the Funding Circle platform and is operated similar to an investment - the higher the risk band, the higher rates apply - but remember these are the riskier business
    Your savings are not protected by the FSCS compensation scheme

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Green Energy Income Account

      Assetz Capital

      Green Energy Income Account

    • Expected annualised rate after fees and bad debt 7.00% Per Annum Gross Return
    • More details

      You lend to… This account is designed to make an actively diversified portfolio of loans in renewable energy projects such as on-shore wind farms
      When do I earn interest? Interest (income) is usually earned monthly
      Can I withdraw money before term ends? The Account generally contains 3-year loans to projects (after which capital should be repaid) but investors can exit the account earlier via the Aftermarket (subject to demand at that time)
      Provision fund? Assetz Provision Funding Limited (APFL), a UK Limited Company, has been set up to provide a discretionary Provision Fund linked to identified Assetz Investment Accounts or loans
      How much can I save? From £1, no maximum
      Founded in 2013

    • Go to site

    Great for
    Investing in renewable energy projects
    Long-term government backed projects with government contractual subsidies
    Automatic inclusion in a separate provision fund to protect investors from income delays or income and/or capital losses on this investment account
    But be aware that
    To lend you must be 18 years or older and a UK resident, with a UK bank account
    Your savings are not protected by the FSCS compensation scheme

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Property Secured Investment Account

      Assetz Capital

      Property Secured Investment Account

    • Expected annualised rate after fees and bad debt 5.5% Gross Capped Return
    • More details

      You lend to… This account is designed to make an actively diversified portfolio of loans in British Businesses with realisable security up to 72% LTV
      When do I earn interest? Once money is deployed in an investment account, you start earning interest. Interest is paid monthly.
      Can I withdraw money before the term ends? Yes, as long as there is demand from other lenders in the aftermarket willing to take on your loans.
      How much can I save? From £1, no maximum
      Founded in 2013

    • Go to site

    Great for
    Lending to business borrowers who provide UK property security for a a loan, with modest loan to values where there is no loss expected
    Automatic inclusion in a separate, discretionary provision fund to protect investors from interest delays and loss of interest and/or capital with this account
    No lender fees apply
    But be aware that
    To invest you must be aged 18 or over and a UK resident, with a UK bank account
    Your savings are not protected by the FSCS compensation scheme

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 1 Year market

      RateSetter

      1 Year market

    • Expected annualised rate after fees and bad debt 3.00% fixed
    • More details

      You lend to… Real people (RateSetter has checked they're creditworthy)
      When do I earn interest? Only once money is lent, though if you select 'market offered rate' this is usually quick
      Can I withdraw money before term ends? Yes - but you'll be subject to pay SellOut fees
      Provision fund? Yes, £16.3 million as of November 2015
      How much can I save? From £10 to no maximum (although RateSetter may limit the amount an individual can invest in any single market)
      Founded in 2010

    • Go to site

    Great for
    Short term access to your money
    Simple P2P lending. RateSetter match your funds for you - just how a bank operates
    No lender fee applies
    But be aware that
    You can access your money (called 'sell out') at any time so long as there is another lender to take your place. The rate you earn will be reduced if you sell out before the full term and a fee may apply, refer to provider for full details
    Your savings are not protected by the FSCS compensation scheme
    To invest with RateSetter you must be aged 18 or over and have a UK bank account

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 1 To 3 Year Term

      Lending Works

      1 To 3 Year Term

    • Expected annualised rate after fees and bad debt 4.00% annualised expected return
    • More details

      You lend to… Real people (Lending Works has checked they're creditworthy)
      When do I earn interest? Only once money is lent. On average this takes 7 days
      Can I withdraw money before term ends? Yes, for a 0.6% (min £20) fee and there needs to be a new lender willing to take your loans before you can access your money
      Provision fund? Yes, and on top of that Lending Works is unique as it has insurance against borrower default
      How much can I save? From £10, no maximum
      Founded in 2012 (platform launched 2014)

    • Go to site

    Great for
    Easily re-invest your earnings through the online Auto Lend tool and get instant access to your money using the Quick Withdraw tool
    No lender fees apply
    Threefold protection which includes the Lending Works Shield. The Shield has insurance against borrower defaults, cybercrime and fraud. No other peer-to-peer lender offers this
    But be aware that
    Your savings are not protected by the FSCS compensation scheme
    To invest you must be aged 18 or over and a UK resident, with a UK bank account

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

Peer-to-peer lending accounts - Long Term 4 Years And Over - Ordered by term

    • Provider/Product name Lending

      Funding Circle

      Lending

    • Expected annualised rate after fees and bad debt 7% variable
    • More details

      You lend to… All types of businesses including limited companies, sole traders and partnerships in the UK (Funding Circle grades their credit rating A+ to E)
      When do I earn interest? Typically, once your money is lent out you receive repayments every month (interest and principal)
      Can I withdraw money before term ends? Yes, you can sell some or all of your loan parts to other investors, for a 0.25% charge on each loan part. There may be some circumstances which prevent loan parts from being sold, for example loans that have had their risk bands ‘downgraded’
      Provision fund? Investors can manage their risk by lending to hundreds of different businesses. You receive all income from the borrower upfront rather than any being allocated into a provision fund for when, and if, a bad debt occurs
      Minimum Investment: From £20 with no maximum

    • Go to site

    Great for
    You can choose each and every individual business you would like to invest in
    If you would like more of a hassle-free solution, you can pre-select the businesses you want to lend to and the rate you're happy to earn and let the Autobid invest for you
    But be aware that
    1% annual fee applies on the money you have lent
    There is no provision fund within the Funding Circle platform and is operated similar to an investment - the higher the risk band, the higher rates apply - but remember these are the riskier business
    Your savings are not protected by the FSCS compensation scheme

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Great British Business Account

      Assetz Capital

      Great British Business Account

    • Expected annualised rate after fees and bad debt 7.00% Per Annum Gross Return
    • More details

      You lend to… This account is designed to make an actively diversified portfolio of loans in Small and Medium Sized Enterprises (SMEs)
      When do I earn interest? Interest (income) is earned monthly
      Can I withdraw money before term ends? The Account may contain short term loans of less than one month through to 5-year term loans to businesses but investors can exit the account earlier via the aftermarket (subject to demand at that time)
      Provision fund? Assetz Provision Funding Limited (APFL), a UK Limited Company, has been set up to provide a discretionary Provision Fund linked to identified Assetz Investment Accounts or loans
      How much can I save? From £1, no maximum
      Founded in 2013

    • Go to site

    Great for
    Investing in the future of Britain's small businesses
    Flexible investment, with the ability to add or reduce investment on an ongoing basis
    Automatic inclusion in a separate provision fund to protect investors from income delays or income and/or capital losses on this investment account
    But be aware that
    To invest you must be aged 18 or over and a UK resident, with a UK bank account
    Your savings are not covered by the FSCS compensation scheme

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 4 To 5 Year Term

      Lending Works

      4 To 5 Year Term

    • Expected annualised rate after fees and bad debt 5.20% annualised expected return
    • More details

      You lend to… Real people (Lending Works has checked they're creditworthy)
      When do I earn interest? Only once money is lent. On average this takes 7 days
      Can I withdraw money before term ends? Yes, for a 0.6% (min £20) fee and there needs to be a new lender willing to take your loans before you can access your money
      Provision fund? Yes, and on top of that Lending Works is unique as it has insurance against borrower default
      How much can I save? From £10, no maximum
      Founded in 2012 (platform launched 2014)

    • Go to site

    Great for
    Easily re-invest your earnings through the online Auto Lend tool and get instant access to your money using the Quick Withdraw tool
    No lender fees apply
    Threefold protection which includes the Lending Works Shield. The Shield has insurance against borrower defaults, cybercrime and fraud. No other peer-to-peer lender offers this
    But be aware that
    Your savings are not protected by the FSCS compensation scheme
    To invest you must be aged 18 or over and a UK resident, with a UK bank account

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Lump Sum Investment

      QuidCycle

      Lump Sum Investment

    • Expected annualised rate after fees and bad debt Up to 6.1% variable
    • More details

      You lend to… Real people (QuidCycle has checked they're creditworthy)
      When do I earn interest? Only once money has been lent out and you receive monthly repayments of principal and interest
      Can I withdraw money before term ends? No
      Provision fund? Yes, maintained at 1.50% of annualised installments due across QuidCycle's entire loan book
      How much can I save? The minimum deposit is £500. No maximum investment
      Founded in 2013

    • Go to site

    Great for
    Automatic diversification of funds
    Receive monthly repayments
    No lender fee applies
    But be aware that
    To invest you must be 21 years or older and a UK resident, with a UK bank account
    Your savings are not protected by the FSCS compensation scheme

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 5 Year market

      RateSetter

      5 Year market

    • Expected annualised rate after fees and bad debt 5.70% fixed
    • More details

      You lend to… Real people (RateSetter has checked they're creditworthy)
      When do I earn interest? Only once money is lent, though if you select 'market offered rate' this is usually quick
      Can I withdraw money before term ends? Yes - but you'll be subject to pay SellOut fees
      Provision fund? Yes, £16.3 million as of November 2015
      How much can I save? From £10 to no maximum (although RateSetter may limit the amount an individual can invest in any single market)
      Founded in 2010

    • Go to site

    Great for
    Short term access to your money
    Simple P2P lending. RateSetter match your funds for you - just how a bank operates
    No lender fee applies
    But be aware that
    You can access your money (called 'sell out') at any time so long as there is another lender to take your place. The rate you earn will be reduced if you sell out before the full term and a fee may apply, refer to provider for full details
    Your savings are not protected by the FSCS compensation scheme
    To invest with RateSetter you must be aged 18 or over and have a UK bank account

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

Innovative Finance ISA accounts - Ordered by rate

    • Provider/Product name Innovative Finance ISA

      Lending Works

      Innovative Finance ISA

    • Expected annualised rate after fees and bad debt Up to 5.20% annualised expected return
    • More details

      You lend to… Real people (Lending Works has checked they're creditworthy)
      When do I earn interest? Unlike a cash ISA, you will only start earning interest on your funds once they are on loan to borrowers. Once money is lent you start earning interest. On average this takes 7 days
      Can I withdraw money before term ends? You can withdraw funds from your Lending Works ISA at any time, provided they are held in cash (i.e. not part of an allocated lending offer or already on loan). If you decide to take funds out of your Lending Works ISA, you will not be able to replace these again in the same tax year and will lose any tax benefits on these funds
      Provision fund? Lending Works operates a provision fund, and on top of that Lending Works is unique as it has insurance against borrower default (part of the three-fold Lending Works Shield)
      How much can I save? From £10. You can invest up to your ISA limit for that tax year. Transfers in do not count towards your limit
      Founded in 2012 (platform launched 2014)

    • Go to site

    Great for
    Invest in peer-to-peer inside of a tax-free wrapper, up to your annual ISA allowance (transfers do not count towards the limit)
    Threefold protection which includes the Lending Works Shield. The Shield has insurance against borrower defaults, cybercrime and fraud. No other peer-to-peer lender offers this
    No lender fees apply
    But be aware that
    Your savings are not protected by the FSCS compensation scheme
    To invest you must be aged 18 or over and a UK resident, with a UK bank account

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name Innovative Finance ISA

      Landbay

      Innovative Finance ISA

    • Expected annualised rate after fees and bad debt 3.54% annualised expected return
    • More details

      You lend to… Landbay only facilitates secured lending against residential buy-to-let mortgages on tenanted properties in England and Wales
      When do I earn interest? Your investment starts earning interest within 24 hours of receipt of cleared funds, subject to mortgage investments being available
      Can I withdraw money before term ends? You can sell your investment on the secondary market at any time, subject to Landbay’s ability to reallocate your invested loan parts
      Provision fund? Yes, losses & late payments are protected by Landbay’s Reserve Fund and Landbay doesn't lend on commercial, bridging or development property loans. This is a discretionary fund derived solely from Landbay's fees and margin.
      How much can I save? From £5,000, up to the annual tax-free ISA allowance of £20,000
      Founded in 2013

       

    • Go to site

    Great for
    No lender fees. The rate you lend at is the rate you will receive.
    Invest up to your annual ISA allowance of £20,000 tax free with no fees to transfer in
    Automatic diversification across multiple buy to let mortgages with terms of up to 10 years
    But be aware that
    To lend, you must be 18 years or older, a UK resident with a UK bank account
    Your investment is not covered by the FSCS compensation scheme. Your capital is at risk.
    £50 one-off fee if you choose to transfer your Landbay Innovative Finance ISA to another provider

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

What is peer-to-peer lending?

Important information about peer-to-peer lending

Investing your savings in a peer-to-peer lending scheme can potentially result in better returns than more conventional forms of saving. However, it should only be considered as part of a balanced investment portfolio and is not for everyone. Peer-to-peer savings are regulated by the Financial Conduct Authority but your capital will not be protected by the Financial Services Compensation Scheme should things go wrong. It’s important you understand both the advantages and disadvantages before making a decision on whether to invest, so please read this guide to help you make a more informed decision.

As the name suggests, peer-to-peer lending involves people using their savings to lend to other individuals, therefore cutting out the need for banks to be involved. The aim is that those who are willing to lend could get higher returns on their savings than they would if they put their money in a conventional savings account, and in turn the individuals they are lending to could get lower cost loans than they would if they borrowed through a bank.

Some peer-to-peer sites lend to small businesses too, which for many has proved invaluable in light of current tight bank lending restrictions.

As a lender, you can choose your rate of return based on the length of time you want to invest your money for and the level of risk you’re prepared to take. For example, if you only want to lend to those with the best credit scores you will earn less than if you are prepared to lend to a higher risk group.

There are charges and fees although these are usually already factored in to the rate you see advertised – this is worth checking though.

Anyone aged 18 or above who is a UK resident, has a UK current account and is not lending in the course of a business can usually become a peer to peer lender.

You don’t need to lend large sums to invest either, most peer-to-peer investments start from as little as £10 or £20.

What are the advantages of using peer-to-peer lending?

In today’s low interest rate environment, peer-to-peer saving is proving increasingly popular, returns can be considerably higher than those offered on most savings accounts. In order to minimise the risks any money you lend can usually be split over multiple credit-checked borrowers in small chunks. Therefore if one person fails to keep up with their repayments, it doesn’t mean you would lose all your money.

Some peer-to-peer lending companies run their own schemes that guarantee to return every penny to investors through a fund which borrowers contribute to by way of a credit rate fee charged at between 0.5% and 3% of the loan.

For additional protection, most peer-to-peer schemes hold Consumer Credit Licences from the Office of Fair Trading and use the same processes and fraud prevention systems as banks, but always ask what protection is in place before becoming a lender.

Since April 2016, it has been possible to hold peer-to-peer loans within an Individual Savings Account (ISA), so that returns are tax-free. This type of ISA is known as an innovative finance ISA. This tax year (2016/ 2017), you can invest up to £15,240 in ISAs, either in stocks and shares, cash, or peer-to-peer loans, or you can invest in a combination of these.

What are the disadvantages of peer-to-peer lending?

Saving with peer-to-peer lending should only be considered as part of a balanced investment portfolio.

Peer-to-peer saving is regulated by the Financial Conduct Authority but your money will not be covered by the Financial Services Compensation Scheme as with most standard investment schemes if the lending company goes bust.

Investing your savings within a peer-to-peer lending scheme is not for everyone. Interest rates vary significantly with higher returns gained through lending to higher risk borrowers. This in turn raises the risk that you may not get some or all of your money back.

If you need to withdraw your funds early, some schemes will charge a fee for doing this and some schemes don’t allow withdrawal of your capital early at all. It is sometimes possible to sell the loan on in order to get your money out early, but there is usually a fee for doing this and could take time, meaning you can’t access your cash in the interim.

If the person you have lent the money to within the scheme defaults on their loan repayments, there is a risk you could lose all or some of your money. Also, if the borrower chooses to repay their loan early, which many people do, it will have a knock on effect on your rate of return.

Compare options for investing in peer-to-peer lending

The number of peer-to-peer lending schemes available has increased dramatically in recent years, so comparing them and finding the right one to suit your needs isn’t always easy. However, you can use MoneySuperMarket to compare peer to peer investment options without having to trawl around all the different sites yourself.

 

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