For those who may not know, a peer to peer loan UK is a way for people to easily lend money to businesses or individuals.
While that is a very simplistic explanation, it’s slightly more complicated and the lender will receive interest (usually at rates much higher than you will enjoy on a savings account, for example) plus their money back when the borrower repays their loan.
It’s always worth researching thoroughly and taking advice before embarking on peer-to-peer lending and the experts at The Bridge Crowd can offer advice if this opportunity really does appeal.
So, what is peer-to-peer lending?
Tip number one
There is peer to peer lending advantages and disadvantages and you’ll need to use a reputable peer-to-peer website. That’s because these act like a marketplace bringing businesses and people together so those who want to borrow money, for example, access a peer to peer lending mortgage, can find those who want to lend it.
This means there’s no need to go to the bank with some peer-to-peer lending platforms automatically dividing the money between various borrowers while other platforms allow you as a lender to choose who your money goes to.
Tip number two
You need to appreciate that the higher rates of interest will be for the riskier borrowers.
To begin with, you’ll need to find a platform you like and can trust and then open an account and pay some money into it.
You can choose the interest rate you would like to receive or there may be an offer of an agreed rate – the rates of interest being charged will be similar to bridging loan rates.
You then select how much you want to lend and the period of time – this could be up to five years – and some platforms will charge an administration fee when you lend money.
Tip number three
Understand the risks in peer-to-peer lending. This type of lending is seen as ‘risky’ by some for several reasons but if you appreciate the risks and how to reduce them, then your money will be safer.
You should always investigate the P2P website’s default rate. That’s when the business or person who borrowed money was unable to repay, which is called defaulting. Be wary of any site with a high number of defaulters.
Some platforms will have provision or a contingency fund to pay out should the borrower default, so the lender does not end up out-of-pocket.
Tip number four
Peer-to-peer lending will see any money earned being classed as income, so you’ll need to pay tax.
You can use your personal savings allowance, so you may end up not paying any tax at all on the profits that you make.
Some platforms have the Innovative Finance ISAs available so you can keep your peer-to-peer loans within an individual savings account, so any interest you receive will be tax-free.
The schemes enable you to lend up to £20,000 for each tax year and this contribution is shared between various types of ISAs, including lifetime ISA’s, cash ISAs and stocks and shares ISAs.
Tip number five
It’s important to appreciate this article is not meant to offer financial advice and it’s important that you seek independent financial advice if you don’t fully understand what peer-to-peer lending is – especially if you are searching for the best peer to peer lending UK platforms.
While there’s an opportunity of using landforms that pay a much higher rate of interest than on savings accounts, you need to understand the risks and what will happen to your money, for example, should a peer-to-peer lending platform go bust.
Potential rewards of peer to peer loan UK
Perhaps the best way to enjoy the potential rewards that peer-to-peer lending may bring is to work with The Bridge Crowd or deposit a small amount of money with a platform until you are used to its workings and appreciate that each platform will work in a slightly different way.
Also, one of the big benefits of using one of these platforms is that you will not need to carry out lots of research, or learn new terminology, because the platform will usually carry out credit checks to reduce the risks of a potential borrower defaulting.
That is better than investing directly into shares or property, which sees lenders having to research thoroughly what they are buying.
It’s also important to appreciate that peer-to-peer lending should not be confused with crowdfunding since these are very different investment vehicles.
If you would like more help and information about the peer to peer loan UK sector and work with experts, then you need to speak with a friendly team at The Bridge Crowd today.