Peer-to-Peer Lenders Are Changing the Face of Business
The growing reputation of peer-to-peer lending has facilitated an enormous growth in businesses offering those platforms. These companies cut out the middleman, offering higher returns for investors and low interest rates for borrowers. There are still a few which stand out at the front of the pack, despite a surge of other adopters.
It’s important to understand the relative merits of each company, with some offering a service similar to placing money in a traditional savings account, and others tapping more into the investment market.
The largest and most well-known of UK peer-to-peer lenders is Zopa. This company loans money to individual borrowers, and has lent over £468 million since it was launched in 2005. Until 2013, Zopa offered protection by spreading your investment over £10 stakes for different borrowers, but now offers a Safeguard to spread the effect of bad debt across lenders. There’s less risk involved in Zopa these days, so return rates have dropped slightly.
Ratesetter is Zopa’s biggest competitor, launched five years later, and also providing money for individual borrowers. Ratesetter allows for a greater level of rate customisation than Zopa, hence the name. You can chose to have you money lent out quicker for slightly less than the quoted market rate, or you can use their Sell-Out function to exit contracts without delay, sacrificing returns if you do so. You can also wait a little longer, and receive a better return rate.
Funding Circle lends to businesses instead of individuals, and markets itself as a service for those who understand investment. Consequently, putting your money into Funding Circle seems a lot more like investment than saving. You can personally assess each business to help decide if it’s worth your money, and the returns can be substantial, with the company currently advertising an average annual return rate of 6.4%. Of course, you’ll be taking more of a risk – Funding Circle has a much higher chance of bad debt.
Zopa and Ratesetter are great options for anyone looking for a higher rate of return than they’d get from investing with a bank, but less risk than they’d find in traditional investment opportunities, while Funding Circle offers higher returns with a suitably higher risk factor. With the industry still in its formative stages, it’s worth keeping an eye out for fresh faces, but these are perfect companies for getting started with peer-to-peer lending.
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