How to make the most of peer-to-peer lending
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How to make the most of peer-to-peer lending





Peer-to-peer lending is relatively new in the UK but in 3 years has seen tremendous growth and in this article we look at the reasons behind its popularity and what both borrowers and lenders should do to make the most of this form of borrowing/lending. The future potential of the peer to peer lending market in the UK is massive which is echoed in this recent quote by Andy Haldane (Executive Director of Financial Stability at the Bank of England) peer to peer lenders.could in time replace high street banks


What is peer to peer lending?


Peer to peer lending is where an individual lends their money to another via a peer to peer introducer. For lenders it's a popular investment option that offers returns that beat inflation along with helping businesses and their communities. Likewise, it is becoming increasingly popular for borrowers with competitive rates whilst being simple to use (all online) and offers fast access to the money they need.


The state of peer to peer lending in the UK in 2013


Currently the peer to peer lending business market is worth around £400 million but this is projected to hit £1 billion in 2014. The P2P money website estimates £300 million in new loans in the UK will be arranged via peer to peer loans and this is growing at 120% per annum.


Peer to peer lending companies in the UK


A brief history of peer to peer lending in the UK started with Zopa who were the first peer to peer lending company setup in 2005. In 2010, the UK observed a large influx of peer to peer lending companies enter the market such as RateSetter, Funding Circle and YES-secure to name just a few companies. In 2013 more niche peer to peer lending sites have been setup in the for example, in the South West of England, Folk2Folk peer to peer lending has helped fund over £1 million in renewable energy projects in Devon and Cornwall along with funding for projects such as house building, commercial leisure facilities and property acquisitions.


Why is peer to peer lending becoming so popular?


The reason for peer to peer lending growth in popularity in recent years can be put down largely to the state of the economy. A survey of 4,500 Which? Subscribers in April 2013 found that 9% of savers had used a peer to peer lending website and put their main reason down to the poor returns on offer from banks generally.


The benefit of peer to peer loans is that anyone can get involved, even on the side of the lender as now you can reap the rewards of investing only £5 in someone, whereas before it was typically left to the very rich to invest in small businesses.


How does peer to peer lending work?


The borrower registers with a peer to peer lending website who group the borrower by risk from details submitted such as credit score, what the money is for and so on. The lender then chooses where they want to invest based on potential risk and returns, a bit like Dragons Den!


Lenders - How to make the most of peer to peer lending


For the lender (the investor), there's a risk that you may not get the return you were hoping for. However there are ways to reduce this risk and you can do so by knowing your investment and making sure that you know what you are getting in to. This way you are able to calculate potential returns and know how safe you are. It's always a good idea to know what you're spending your money on, especially when it can be 5, 6 or even 7 figures!


Another tip for lenders is that you should invest in what you have experience in or have an active interest as this will allow you to have a firmer grasp as to what the business is and you'll be more passionate about the business itself. You can use this to your advantage when choosing what to invest in and get yourself a fantastic return of your investment. As well as this, make sure you know what will happen to your money if the project falls through before investing otherwise you may be kicking yourself later on.


Borrowers - How to make the most of peer to peer lending


If you are a larger startup company that needs more funding / capital investment then peer to peer lending may not be your best option. However, if you are small or startup business and don't require as much funding then peer to peer loans could be a great option for you.


Having a well thought out business plan that you are passionate about and being certain that it will generate money is the best way of gaining interest in your company as lenders will be looking for realistic, passionate people to invest in.


If you think you have a plan or idea that you believe could be successful and you need some monetary input from investors then peer to peer lending could work really well for you. It has already been a big success in recent years for many people requiring funding in the UK.











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