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An introduction to peer-to-peer lending

20/01/2021

For those looking for a middle ground between saving and investing, peer-to-peer (P2P)
lending is proving a popular choice. Survey data reveals that two in five European investors
have put at least €20,000 into P2P lending, while 7% have invested more than €100,000. If
it’s a sector you’re considering, read on for an introduction.

 

What is peer-to-peer lending?
With greater similarities to investing than to saving, P2P lending involves matching those
with money to lend with those who are looking to borrow, without the need for a bank.
Instead, using a specialised P2P lending platform, lenders are matched with borrowers who
fit their criteria.

While some will choose to lend to a single borrower, others will split their money across
multiple borrowers to spread the risk. Lenders will simply need to decide which lending
platform to use, how much to invest, their preferred rate of interest, and the repayment
period.

 

Why do people choose P2P lending?
One of the biggest draws of P2P lending for many is that it can command higher returns than
putting the money into a savings account, as a result of the increased risk involved. In
addition, borrowers have to be approved by the platform and undergo credit checks that will
establish how much they can borrow, and at what rate.

In addition, should you run into difficulties in recouping your funds, the lending website will
act on your behalf to get this money back.

However, it is also vital that you check that the lending service you use is regulated by the
Financial Conduct Authority. Even with this regulation, though, be warned: your money will
not be protected by the FSCS, so it could still be possible for your money to be lost if, for
example, the lending platform goes under.

Like any form of investing, peer-to-peer lending comes with both risks and rewards attached.
The important thing for you is to decide whether the pros outweigh the cons before getting
into the P2P lending sector.

 

Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The
marketing materials are not intended to provide financial advice nor promote any individual
financial products.

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