Published on January 18th, 2018 | by Jenny0
Getting Started with Peer to Peer Lending
Peer to peer lending (commonly known as P2P lending) has grown phenomenally in popularity over the last two years. In fact, the P2P lending sector showed exceptionally strong growth overall in 2016, with the Cambridge Centre for Alternative Finance valuing the sector at over £3.5 billion. Some areas of the industry demonstrated growth of nearly 90% from 2015 to 2016, highlighting the burgeoning popularity of this form of “innovative finance”.
With peer-to-peer lending making headlines, more people than ever before are wondering how they can get involved with the next big thing in finance. So, here’s our short and sweet guide to getting started in peer to peer lending.
Identify your goals. What do you want from your money? Are you hoping to make a quick profit, or to keep your money as safe as possible while still growing it? Both are possible, and many platforms allow you to diversify your capital between different levels of risk and reward – you have a lot of control over how to achieve your desired outcome.
Choose a platform. There are plenty of different P2P platforms you can invest with, each with their own speciality. Some long-standing platforms such as Zopa, RateSetter and Funding Circle are well trusted within the industry, while plenty of new, innovative platforms offer a wider selection of investment opportunities – LandBay enables you to fund Buy-to-Let mortgages, while Flender lets you pick and choose small business investments.
Buy In. Once you’ve decided how to invest, it’s a simple case of transferring your capital to the lender, who will then pass it on to your chosen recipient(s).
Receive Repayments. You’ll start to receive repayments as soon as your borrower starts paying back their loan – you’ll usually accrue interest payments directly into your account, so you won’t need to get involved in collecting the money yourself.
Cash Out. Depending on your chosen product you may have the option to cash out at any time, or you may need to wait until your loan is bought up by other platform users. Either way, you can usually withdraw your money from a P2P platform fairly quickly and straightforwardly, and can then reinvest it or spend it as you see fit.
Track Your Earnings. Just as with a savings account, earnings made through P2P lending count towards your annual tax-free limit. Once this is reached, you’ll need to start paying tax, so factor this into your plans if you’re investing heavily. Some platforms also offer an “Innovative Finance” ISA, which enables you to earn up to £20,000 tax-free, which is extremely valuable for anyone expecting to earn significant sums from P2P lending.
This is very much a quick-start guide to getting involved with peer-to-peer finance, but it covers the essential process for taking up a stake in this fast-growing industry. If this has piqued your interest in P2P finance, be sure to read on further in our blog for useful information, news and updates.