Peer to Peer Lending

[davieG]

Anyone made use of this either as a lender or borrower, not heard of it before but it seems to be working ok.

BBC

Lending via three websites that link savers with borrowers - bypassing the banking system - has topped £250m.

The "new age" finance carries no protection for deposits, but is being tipped as a serious threat to traditional banks.

The peer-to-peer sites are led by Zopa, which has lent more than £200m since it started in 2005.

Funding Circle, specialising in business loans, has topped £34m, and RateSetter has reached £24m.

Last month the government said it would lend these sort of firms £100m to help expand their own lending to businesses.

"It's a marketplace, the eBay for money," says Lynne Martin from Hertfordshire, a foot technician in her late 50s who has been using Zopa to build up a nest egg for retirement.

Higher returns

Lynne was fed up with the returns she was getting from banks and pension plans.

So she has lent a substantial part of her savings via the website, spreading it between hundreds of borrowers and by-passing the banking system.

The interest from the latest £5,000 is 7.4% a year before tax but after taking into account Zopa's 1% charge.

That is substantially more than is available on a typical savings account at a bank.

On the other side of the ledger, Jamie Hirst from Chippenham in Wiltshire has borrowed £4,500 through Zopa to cover the cost of a revamp of his kitchen and bathroom.

The 8.4% APR he is paying is 5% less than he was quoted by his bank.

"I thought it was brilliant," he told the BBC's Your Money.

"The fact that there wasn't some fat cat taking the profits, just some guy investing 50 or a hundred quid to get a little return and doing something good for someone else."

The drawbacks

There is a significant drawback for savers: the lack of any guarantee that you will get your money back.

“Start Quote

It's not a share and it's not a bank account”

Lynne Martin

Peer-to-peer lending, as it is known, does not qualify for protection from the Financial Services Compensation Scheme (FSCS), which provides security up to £85,000 per bank, for each saver.

The peer-to-peer sites put their loan applicants through credit checks and Zopa says it divides people's savings into £10 chunks which are spread between borrowers, to minimise any risk.

On average, so far, its lenders have lost 0.5% of their money as a result of borrowers defaulting.

But Lynne Martin predicts the concept is bound to catch on more widely.

"Necessity is the mother of invention," she says.

"This is a new asset class. It's not a share and it's not a bank account."

Official support?

Lynne has support from a director of the Bank of England, Andy Haldane, who suggested in March that peer-to-peer lenders could replace High Street banks

"There is no reason why end-savers and end-investors cannot connect directly," he explained.

"The banking middle men may in time become the surplus links in the chain."

Lynne is hoping the interest she is earning will help pay for her to retire to the West Country, a hope which highlights an interesting feature of peer-to-peer lending.

Much of the money has been moving across generations, from older people looking for a decent income to younger borrowers setting up in life and desperate to keep down the cost of taking a loan.

[Saxondale]

Nice idea fundamentally, but what about the bad debt?! Open to major abuse with, presumably, no link to credit referencing.

[davieG]

Nice idea fundamentally, but what about the bad debt?! Open to major abuse with, presumably, no link to credit referencing.

Well there is a risk but there is in other more rewarding money investments and if they take the spreading of the loans across all lenders then the risk is controllable, I suppose they could get a run of dodgy borrowers but one would hope they're vetted properly.

[Guest]

Nice idea fundamentally, but what about the bad debt?! Open to major abuse with, presumably, no link to credit referencing.

[Smudge]

Sounds like it's a good way to earn money but with risk.

I'd look at it this way, I'd assess how much I could afford to lose if it went tits up. In fact going to the casino is a similar mind set.

By investing £240 then £20 per month for 5 years at 7% you get a future value of £1780.44 for a £1200 investment.

i used this compound interest calculator

[Smudge]

Nice idea fundamentally, but what about the bad debt?! Open to major abuse with, presumably, no link to credit referencing.

According to their website they do credit checks.

[Trav Le Bleu]

According to their website they do credit checks.

Yep, the article clearly says that too.

[MooseBreath]

A lot of risk for returns not much greater than the best isas and savings accounts

[Saxondale]

According to their website they do credit checks.

Yep, the article clearly says that too.

I'm not talking about credit checking at application stage - I'm talking about if there any consequences if you default. I was questioning whether a good or bad peer-to-peer credit profile would show as a CAIS reference and therefore whether it reflects on your credit file.

If it doesn't, you could quite easily rip someone off for £££ and f**k off with no consequences.

[Smudge]

Nice idea fundamentally, but what about the bad debt?! Open to major abuse with, presumably, no link to credit referencing.

I'm not talking about credit checking at application stage - I'm talking about if there any consequences if you default. I was questioning whether a good or bad peer-to-peer credit profile would show as a CAIS reference and therefore whether it reflects on your credit file.

If it doesn't, you could quite easily rip someone off for £££ and f**k off with no consequences.

Pretty hard to understand what you meant in your second post from the first.