Getting Started with Peer-to-Peer Lending
So you’ve read up on the pros and cons of the P2P industry, weighed it against your other options, and decided that peer to peer lending is your best choice for investment. Now it’s time to get down to the nitty-gritty of actually opening an account, and starting to earn. Becoming a peer to peer lender isn’t too complicated, but for those new to the system we’ve created this beginner’s guide…
1. Choose a product
Not all P2P services offer the same opportunities; though most will have a “cover fund” to guard against borrowers who miss payments, the higher-interest products will typically be exempt from this, so be sure that you’re getting the right combination of risk and reward from the product you choose. You needn’t put all your eggs in one basket – with firms like Zopa it’s easy to split your investment between a high-interest and a low-interest service in order to spread your risk.
2. Register and authenticate
As peer to peer lenders are still regulated by the Financial Conduct Authority (FCA), just like the rest of the financial sector, they’re required to abide by strict security protocols to ensure that your money and information is held safely. This means that you must provide a copy of photographic identity to verify your account, which can be transferred electronically.
3. Transfer funds
Once your account is registered and verified, you can begin investing by making a transfer from your bank account to the lending service’s account. Typically, you can pay in as much as you like at once, but it can be worthwhile to pay in slowly if you think you might need the money back soon. Most accounts require you to sell off your existing loans to other lenders before you can withdraw it, which can take some time.
4. Begin lending
This happens automatically, but not instantaneously. Because you’re lending out small sums to contribute to thousands of different loans, it can take a while for all your money to be lent out (depending on the financial climate at the time). As your loans are repaid, you will begin to accrue interest, which will automatically be added to your lending capital.
This procedure can vary between different P2P services, but the general premise is the same. It’s straightforward, quick and safe to register, and you can easily begin to make a return on your investment.
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