Peer-to-peer lending has continued to take the market by storm in 2016. With the market continuing to grow and alternative finance establishing itself firmly, more and more savers are looking to get involved.
First of all, what is peer-to-peer lending? P2P lending companies essentially match borrowers with lenders. This allows both borrowers and savers to bypass the banks and cut out the middleman. By doing this, borrowers tend to get a lower rate than a bank loan as the P2P firms are very competitive. Lenders/savers also tend to receive a higher interest rate.
• Tom lends his money through a P2P site. He is offered an interest rate of 7%.• James borrows Tom's money through a P2P site for his business. He is offered an APR of 7%.
See how the rate is a win for both parties?
To sum it up, it does exactly what it says on the tin; people lend to other people, no banks and (usually) more attractive rates. We have summer up our current top ten interest rates across the market which can hopefully give you a little bit more insight into these websites, as well as being able to make a more informative decision before deciding to participate.
Funding Circle has become a well-established P2P platform. With the Government backed British Business Bank lending through circle, they received £40m from the government in investment to lend to SME businesses. They have a current estimated return of 7.4% per year to investors and have roughly 49,000 users on board.
Wellesley is a P2P lender who focuses all around the property market. This includes providing businesses and developers with all types of loans, such as property development, refurbishment, bridging etc. Wellesley makes sure that every single loan is secured against a tangible asset, normally residential or commercial property. This of course adds a sense of confidence to users, as well as the fact that they lend their money beside yours. They offer an annual interest rate of up to 6.32% if paid on maturity or 5.5% if paid monthly. You can start from as little as £10.
Ratsetter are a huge player in the market and offer very competitive rates. With no investors funds lost to date, they lend to UK businesses looking to grow and UK households. Borrowers can get a loan as low as 7.5% and investors can earn up to 6.1% APR on their money.
Market Invoice is the world’s largest peer-to-peer invoice finance platform. They offer businesses a platform in which they can pass their invoices to lenders to be paid, in order to gain working capital. Market Invoice simply pay the invoice and then deal with the businesses customer for payment. With £730m+ lent out to business so far, they offer a return on your investment of anywhere between 7-11%.
Lending Works are another P2P lender with very competitive rates for both lenders and borrowers. They lend their funds to UK creditworthy businesses. Over 3 years you can expect a rate of 4.7% and over 5 years the rate is 6.2%. Lending Works go the extra mile when it comes to insurance for their loans. They provide safeguards "against the risk of borrower defaults".
Landbay offer the same type of investments as other P2P platforms however they have a slightly different approach when it comes to earnings on your investment. You can two choices. Firstly, a three year fixed rate of 4.5%. Secondly, you can opt for the tracker rate. This option is currently at 3.35% pa however, it follows the LIBOR (London Interbank Offered Rate), meaning when this rate changes, so does yours. Of course this can work in your favour but can also go the other way.
Funding Knight are another well-established lender who crowdlend to British businesses. They only approve businesses that they would be willing to invest in themselves so that gives investors a sense of insurance. The businesses investors will lend to have undergone quality due diligence from Funding Knight. They have an average return of 9.10% to investors, which is a very competitive rate.
Archover are an insured and secured P2P business loan provider. They "use all asset debentures, controlled accounts and insurance" to provide investors with a strong security over their investment. They offer a rate of anywhere between 6.25% - 8.0%
Zopa is "The Godfather" of the P2P industry having been established the longest and having a great track record. Zopa have done extremely well in providing short term and long term personal loans. They have 3 schemes for investors:
• Zopa Access: This is for newbies who want to be able to dip into their money occasionally. You can expect a rate of 3.5% APR.• Zopa Classic: This is for people looking for a good investment where they leave their money to grow. You expect a rate of 4.5% APR.• Zopa Plus: A higher risk investment but great if you are happy to lend with Zopa and want a higher return. You can expect a rate of 6.5% APR.
Money Thing is another P2P platform which strives to make sure that investor’s money is as secured as can be. You only buy existing loans which they have already vetted, asset-secured and lent to also. There loans are all asset secured and their typical loan-to-value ratio is between 50-70%. The average lender typically earns 12% pa.
So you can see there are some good benefits of P2P lending. Investors and borrowers both are likely to receive a good rate providing they meet the provider’s terms. These sites have opened up borrowing and given the public a great alternative to the banks. Businesses that have been turned down by the bank can now skip the inevitable 'computer says no' from the banks and have a whole new market to explore. Not to mention they are more likely to have their application looked over by a real person who can make a more in depth decision.
It’s very important to remember that none of these investments are guaranteed. They are not your traditional savings accounts and they do have a higher level of risk and your capital is at risk. The P2P lenders are not covered by the FSCS however they are regulated by the FCA. The information and rates provided are all based on data collection on the 22/04/2016. It is important to understand that this is not advice; we are simply collecting information to provide to investors so they can make a fair and informative decision.
By Lee Nicolaou, Business Agent.com