Peer to peer lending is where individuals lend their money directly to people looking to borrow money for personal or business reasons. It is a new form of lending that has arisen partly because the traditional forms of finance have deteriorated since the Global recession began in 2008. The Big banks are no longer lending at the rates they once were to business owners and individuals. On top of this, savers are no longer getting the high returns they were five years ago.
Peer to peer lenders can get returns of between about 2% and 12%, which is massive compared to the major banks, who tend to offer on average, between 1% and 3% for savings accounts and cash ISA’s.
The majority of peer to peer lenders offer business loans, and if used correctly, will provide a major boost to the UK economy, as the Big five banks who provide 92% of all business loans, are still not lending enough to drive the growth that the UK economy needs to bounce back as a major force in the financial world. The Bank of England said that in the last 4 years lending to small businesses has fallen by 15.4%.
The majority of the UK may be living dangerously close to the red, but there are still a large amount of individuals who have the resources to be able to lend to small businesses and individuals. The most recent Sunday Times rich list (2013), showed that the 1,000 richest people in Britain and Ireland share a wealth of £450bn.
In addition it is estimated that around 47% of Britons are now saving. The majority of these savers will be getting a very low return on their savings compared to peer to peer lenders.
More needs to be done to promote these short term lenders and the courageous Individuals helping bring Britain back from the brink of Bankruptcy and into prosperity. Since this phenomenon started in 2005 over £300 million has been lent to businesses and individuals.
Like any investment there are risks involved with peer to peer lending. Unlike other financial institutions, Lenders money are not guaranteed by the Financial services compensation scheme, which means Money could be lost. We will explain next week why this should not be a deterrent for those who are serious about savings.
We will also discuss the different lenders in the market and what they have to offer and how to best make an informed decision about if peer to peer lending is for you.