Peer-to-peer lending, sometimes referred to as P2P investing, is the practice of one individual or business lending money to another. P2P investing is fully FCA regulated in the UK and, according to a recent study, money invested via peer-to-peer platforms helped to finance in excess of 1,000 residential and commercial developments in 2016, resulting in a nationwide market valuation of £1.15 billion.
If you’d like to know more before you dip your toes in the water, we’ve put together the following easy-to-read explanation of everything you need to know about peer-to-peer investing!
What is a peer-to-peer platform?
P2P platforms function as an intermediary between borrowers and lenders, bringing those in search of finance together with individual lenders. Most platforms exist solely online and take security in the form of various assets, such as property.
Why choose P2P over a traditional savings account?
Put simply, peer-to-peer investors are likely to receive higher interest rates than most high street savings accounts can offer. In part, this is because peer-to-peer platforms’ online presence means their overheads are lower.
How involved are the investors?
Each platform varies and platforms often have multiple products, which will each require a different level of investor participation. As an example, with Kuflink’s Select-Invest, investors choose individual deals they’d like to invest in, whereas the Auto-Invest product diversifies their investment, as well as their risk, over a variety of deals.
In both cases, all that’s left for the investor to do after their initial investment is sit back and watch the interest accrue. *
Are borrowers subject to credit checks?
Yes, and platforms should have their own procedures to complete this. Credit checks usually assess an applicant’s creditworthiness based on their credit history, income and other relevant factors. In comparison with securing a high street loan, borrowers may find that they are accepted for peer-to-peer finance with lower credit scores.
What are the risks?
As with any investment, there is a level of risk associated with P2P lending. The level of risk depends largely on the individual deal or platform terms.