How to get started with peer to peer lending

Peer to peer lending is a newer form of lending money, or at least it has been refreshed by a number of new ways to lend given to us by the internet, and globalisation. It means there is no financial institution involved, cutting out the banks means that in theory those that want to borrow will be able to get slightly lower rates and those that want to make a little money by lending should benefit slightly.

There are a number of different peer to peer lending sites such as Zopa and Funding circle, but one thing to remember is that there is no where near as much protection for your money in the event of disaster, though there are some mechanisms to attempt to safeguard your money. Borrowers on these sites are credit-checked and receive a risk rating which informs what rate they can borrow.


Lending sites in the UK
The biggest P2P lending sites in the UK are Zopa, Ratesetter and Funding Circle but smaller ones like ThinCats, LendInvest and MarketInvest can be good also, they allow you to compare different peer's loan rates and reputations, however as the sites need to make money they charge a fee.

Zopa
The most established peer-to-peer lender in the UK, for savers it works just like a bank - you choose how long you want to leave your money inaccessible, pick the rate and your savings will be spread among those it lends to in order to spread the risk. To ensure lenders get their full loan amount Zopa uses a fund to cover any shortfall from bad debts in your portfolio.

Funding Circle & Ratesetter
Funding Circle allows you to pick individuals or businesses to lend to based on what they are proposing, but you can also choose to spread the risk in a savings fund like Zopa or Ratesetter. If you would like a referral to Funding Circle for £50 cashback into your Funding Circle account, contact me at oliviashaw@hotmail.com. Ratesetter attempts to seem as much like a savings account as possible, and Ratesetter has its own provisional fund to cover any shortfall, they offer a £50 cashback as well upon signing up via the referral link.

Is peer-to-peer lending for me?
One good question is whether you are prepared to have your money inaccessible for 1-5 years, if you need access to your money then a current account or ISA will probably suit you better, see my list of high interest current accounts for more information on that.

Although peer to peer lending sites are regulated, there is no overarching scheme for compensation if they go down, whereas in normal banks the Financial Services Compensation Scheme can pay out compensation to people who end up out of pocket because a bank or other financial services provider goes bust, and this will cover you for up to £75000 with a single institution if they go bust.

You need to see if the rate offered is actually better than just having your money in a traditional bank after factoring in the fees, don't just get so obsessed looking up the best rates in p2p lending that you forget about normal banks and the potential for high interest rates. If you do choose to get into peer to peer lending make sure you spread your money around different savings and providers so you are less exposed to any surprises and your risks are lower, grab this book for free with a trial of kindleunlimited.