There are several reasons why borrowers and lenders are increasingly attracted to peer to peer lending and here we will explain everything you wanted to know about a peer to peer loan UK.
The main attraction is that these peer-to-peer platforms enable lenders and borrowers to come together and bypass high street banks; the loans can be used for a variety of purposes, including by those firms and organisations wanting a bridging loan.
The lender will achieve a better rate of interest than they would if they left their money in a savings account, while the borrower will pay less than they would for a bank loan. The loans are generally for shorter periods from a few weeks and up to two years.
However, while there are excellent opportunities available for lenders and borrowers using peer-to-peer platforms, there are some risks.
The big difference for someone who is loaning money on such a platform is there’s no guarantee of their money being repaid and funds lent through the website are not backed by the Financial Services Compensation Scheme (SCS).
Though an attraction for a lender is that these loans can be included in an ISA – though it is always a good idea to seek professional financial advice before doing so.
Bridging loans rates for business borrowers
For those interested in peer to peer lending for a bridging loan then the bridging loans rates for business borrowers are detailed on the platform and depending on the amount being borrowed and the borrower’s circumstances.
This means that as with bridge finance firms, the platforms will also consider a wide range of applicants and purposes for the bridging loan and also process these applications quickly. For instance, the Bridge Crowd can offer a decision in principle in just 30 minutes and then, with previous clients, complete the process within 24 hours.
Essentially, the risk element is the price the lenders are paying to enjoy higher returns on their money and many platforms will have reserve funds to help ensure that those lenders do not make losses from bad debts.
The big attraction for borrowers is that they can choose to borrow from a peer to peer platform purely based on the lower rates of interest being offered.
Peer to peer lending mortgage facilities
So, we have explained that a lending platform will effectively match up a lender with a borrower and the platform may also offer peer to peer lending mortgage facilities for those who need access to cash quickly and have a sound security to put up.
These lending platforms do not have the overheads of high street banks since they cut out the middleman and so can offer more generous rates and they also have less strict lending criteria.
For those interested in lending to such a platform, they work in different ways. Some will allow a lender to choose who they will lend their money to while other platforms will spread the lender’s money across several investments.
Some peer lending platforms also enable lenders to choose the creditworthiness of those they will loan to since the riskier applicants will generally be charged higher rates of interest. The platform also collects the repayments from the borrower and many of them will see bridge funding and development loans as being ‘risky’.
It’s also worth mentioning that some platforms that spread the lender’s money across various loans are doing so to help reduce risk should the borrower fail to repay what they owe.
Tips for peer to peer lenders
If you are thinking of lending money on a peer-to-peer platform, then here are some tips you need to consider:
- Check whether the amount of return includes the platform’s fee
- Do not risk money you cannot afford to lose
- Check whether the platform has a compensation fund
- Will your peer-to-peer lending site allow you to withdraw funds early?
The tax situation for those who are lending money on these platforms means they need to appreciate that the profits they earn will be taxed as income. They will need to tell HMRC how much they have earned at the tax year end.
Also, the interest earned on a peer-to-peer loan will be considered under the Personal Savings Allowance.
This allowance means a basic rate taxpayer, that’s someone paying 20%, can earn £1,000 every year interest tax-free. Higher rate taxpayers can earn £500 without having to pay tax.
It’s also possible to use the Innovative Finance ISA that was introduced in April 2016 for lenders to have the platform pay interest into their ISA tax-free.
Borrow money through a peer-to-peer bridging finance platform
If you are looking to borrow money through a peer-to-peer bridging finance platform, then you are joining a growing number of borrowers who have been attracted by the opportunities.
As mentioned previously, for those wanting to borrow money, the platform will match you up with someone who is willing to lend money to you and the purposes for bridging may include buying property to develop or using the facility for buying and developing a portfolio of rental properties.
The reasons for peer-to-peer borrowing include:
- Peer-to-peer loans are often cheaper than building societies and banks
- Most lending platforms do not have a minimum loan amount which may suit borrowers over a short period
- These platforms are attractive for those who are having difficulty in getting a loan from a building society or bank.
The application process to apply for a peer-to-peer loan is straightforward and there will be a calculator on the lender’s platform to show how much interest you will have to pay.
There’s no doubt that a peer-to-peer loan UK platform offers opportunities for those willing to lend money and those wanting to borrow and for more help and information then speak with the experts at The Bridgecrowd.