peer to peer lending

nicola0313

Really just out of interest what is the deal with this, is it a good thing or should we swerve completely? There is loads of info on t'internet but it gets a bit confusing with conflicting info so just wanted a straight forward explanation. Thank you all

Ignatius_A

nicola0313 wrote: »

Really just out of interest what is the deal with this, is it a good thing or should we swerve completely? There is loads of info on t'internet but it gets a bit confusing with conflicting info so just wanted a straight forward explanation. Thank you all

Easy peasy - you put in (example) £2000, they split that up into 200 x £10 micro-loans - your money goes in tiny bits to fund loans to 200 different borrowers. You gain the interest from those loans.

Some firms also have a fund to compensate lenders for loans that go bad

important info:

1) This is an investment, not savings. - it's not regulated by the FCA. It hasn't got govt backed protection. - the best firms keep your unloaned money in your name in a segregated account - so that in the event of the loan company failing, that's not their assets (usually there's also a management agreement for another company to administer existing loans until completion, too)

2) it's a long term investment - loans are usually 3-5 years in length. When you no longer want to invest, you can (in some forms) sell your investment to other investment, though there's usually a charge for this

3) usual rules with investment - don't invest what you can't afford to lose. In the event of the sort of sudden increase of interest rates that the BofE tells us isn't going to happen, unsecured loans will (or should be) at the bottom of the list below mortgage & essential bills

4) check if you've got sufficient 'liquid' assets (easily accessible cash in an isa for example) for emergencies before investing.

5) as in all areas, some companies are better than others. Do your research. Martin has spoken on TV about 3 market leaders in particular (Zopa, funding circle and ratesetter) that appear reasonable)


Personal note: I recently placed £2000 with Zopa on behalf of my wife - looks ok so far. I'm quite pleased by the level of information they make available on where your money is and who it's with....

EdGasket

Due to the lack of protection (you could lose the lot) and the fact that all income is taxable I would personally avoid peer to peer. You could get a similar return on Sainsbury's shares (or an income equity fund) with your money protected except, of course, against Sainsbury shares falling in value; but equally they could go up and you'd make a capital gain in addition to receiving income from the dividends.

Ignatius_A

It's taxable unless you're married and your partner has unused tax allowance

Sure, any investment is risky - that's the difference between tax and savings. It's the reason I mentioned that you never invest money you can't afford to lose. shares, funds and bonds can also, theoretically, lose all their value.

however, in comparison to an isa savings account, i'll take 5% before tax in preference to 1.75% untaxed any day - even with the small additional risk (I did mention there are risk mitigations in place) - as long as I'm sure I have access to some cash if I need it in a hurry

Preeti12

Ignatius_A wrote: »

It's taxable unless you're married and your partner has unused tax allowance

Sure, any investment is risky - that's the difference between tax and savings. It's the reason I mentioned that you never invest money you can't afford to lose. shares, funds and bonds can also, theoretically, lose all their value.

however, in comparison to an isa savings account, i'll take 5% before tax in preference to 1.75% untaxed any day - even with the small additional risk (I did mention there are risk mitigations in place) - as long as I'm sure I have access to some cash if I need it in a hurry

Hey Ignatius_A,
You are absolutely right we should not invest much money in shares and funds. Because when we are investing money in shares and if because of some reason that share closes or banned then we lose our money. ISA saving account is the best option.

EdGasket

Preeti12 wrote: »

Hey Ignatius_A,
You are absolutely right we should not invest much money in shares and funds. Because when we are investing money in shares and if because of some reason that share closes or banned then we lose our money. ISA saving account is the best option.

WHAT!!!
Have you never looked at the statistics that show time and time again that over the long term investing in shares beats savings accounts by a mile. You can also wrap them up in an ISA to protect gains from tax.

rwgray

You might like to look at exising forum discussions on this subject e.g.
https://forums.moneysavingexpert.com/discussion/4313323

Rich.x

tombar1

I've invested with Zopa, but have just realised today that the rates quoted for a 5 year investment are only valid if you re-invest the money paid back each month (for presumably another 5 years), so the rates quoted can't be compared to a normal real 5 year investment