About P2P Lending
P2P stands for peer to peer lending, sometimes also referred to as social or person to person lending. It is a relatively new industry which has grown out of the recent financial crises created by banks over-lending.
The concept is very simple – individuals who have some cash that they want to invest lend it to borrowers, either individuals or small businesses, through an internet platform that puts them in touch with each other. The lender grows their investment by receiving regular interest payments from the borrower. These rates are agreed by all parties from the outset. The online ‘middle man’ takes a cut from this interest. The borrower gets their loan and pays back the sum borrowed, plus interest, at a set date.
With low overheads, the rates P2P sites can offer lenders are as high as 15% before tax. If you compare this to top tax-free cash ISAs paying around 2.3% interest you can see why P2P lending is quickly gaining momentum. There is no shortage of borrowers either as individuals looking to amalgamate their credit card debts seek out lower interest rate schemes.
However, P2P lending is only now being regulated for the first time by the Financial Conduct Authority.