What is peer to peer lending?
Peer to peer lending, or P2P as it is also known, is a relatively new way of either borrowing or investing money. In the few years that it’s been around, peer to peer lending has quickly grown in popularity and is now used by millions of people. This type of lending actually cuts out the banks altogether (the middleman) and matches up those that are looking to invest their money with borrowers to create a no-fuss system.
Is P2P Regulated?
Since April 2014, the peer to peer industry has been regulated by the Financial Conduct Authority. This means that every P2P firm must have plans in place just in case things go wrong, and must present information in a clear, fair and not misleading manner. Since April 2017 all P2P lenders must have at least £50,000 put aside to act as a buffer to ensure that they can weather any major financial upsets.
Is My Money Safe?
Although P2P lending is regulated by the Financial Conduct Authority, money invested is not covered by the Financial Services Compensation Scheme (FSCS). Having said this, should the P2P firm go into liquidation, lenders will still be owed the money that has been lent. All P2P firms should have contingency plans in place for a third party to collect payments from borrowers should the worst happen.
When you lend through a P2P firm, you’ll be agreeing to lock your money away for a set term chosen by you. You will usually get a better return the longer you keep your money invested. For instance, with Zopa – the longest running P2P lending firm in the UK – you can expect around 4.0% return when investing for 3 years and a 5.0% return when investing for 5 years. The amount you can earn on your money varies from P2P firm so it’s important to shop around and find the best arrangement for you.
Who is P2P Borrowing Aimed At?
Borrowing through a P2P firm is open to anyone, but you will need a fair to good credit history in order to be accepted for the best interest rates available. The original P2P lending platforms have become stricter in recent years in order to protect the money invested, which is admirable, but it doesn’t help those who need a loan but have a less-than-perfect credit history. However, there are now other P2P firms, such as those offering guarantor loans which has opened up peer to peer borrowing for many more people and gives lenders more of a choice on where to invest their money.
Peer to Peer – Is It Right For You?
P2P lending and borrowing is deemed a great way to obtain credit at reasonable rates and a good investment option.
When looking into P2P lending or borrowing, it’s important to do your research and understand which companies offer the best rates for your particular needs and circumstances. Check out independent review sites for the opinions of current and past customers and make sure you’re 100% comfortable before signing on the dotted line.
It is important to remember that your money is at risk and is not protected by the FSCS.
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