Peer-to-peer lending is a form of crowdfunding. Crowdfunding is usually associated with rewards based crowdfunding, where you pre-buy a product, or equity crowdfunding, where you receive shares in a company. In contrast, peer-to-peer lending investors lend money by investing in loans and then receive a monthly repayment of capital and interest. Investors should be aware that there is risk associated with all three of these crowdfunding models. Why is peer-to-peer lending the best option for you.

#1. Better Returns

One of the main reasons for investing through peer-to-peer lending is the interest rate. With bank saving rates at rock bottom investors in peer-to-peer lending can achieve higher interest rates by lending their cash through peer-to-peer lending platforms. For instance, some lenders rate of returns start at 5.95% and can go as high as 12.25% depending on the risk level you want to lend at, making it a very interesting proposition for potential investors.

#2. Strict Credit Checks

Peer-to-peer lending platforms, unlike the other forms of crowdfunding have strict credit checks in place and every company or individual who is applying for a loan has to pass these before they are eligible. In the case of LendingCrowd, a peer-to-peer lender specialising in small business loans, an investor is investing in established businesses or sole traders that have passed robust credit checks.

#3. Support Small Business

Some lenders, like LendingCrowd, provide small businesses with an alternative route to finance.SMEs account for 60%* of UK private sector employment and 47% of the turnover in the private sector. Small business is the bedrock of the UK economy and by investing in these types of loans you are helping the UK local economy by helping these small businesses expand and create more jobs.

#4. Peer-to-Peer Lending is Highly Regulated

From 1 April 2014 the Financial Conduct Authority has regulated peer-to-peer lenders. Investors are now better protected with peer-to-peer platforms having to adhere to strict rules including presenting information clearly, being honest about risks and having plans in place in case something goes wrong. If these rules are not met, peer-to-peer lenders can face sanctions with the possibility of large fines.

#5. Innovative Finance ISA

In the Summer Budget 2015 a new type of ISA was announced, which will be known as the Innovative Finance ISA (IFISA). Launching on the 6th April 2016 this means investors in peer-to-peer lending will be able to invest their ISA allowance by lending to others without having to pay tax on the interest they earn. This will save investors significant amounts of tax each year.

#6. Personal Savings Allowance

Launching at the same time as the IFISA is the new personal savings allowance. This means that investors will be able to receive up to £1000 in savings or loan interest without being liable for tax (£500 for higher rate tax payers).


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