Yes, deciding to become an investor of peer-to-peer loans can be a worthwhile investment. One of the main reasons for this is because you can usually receive a higher level of return on your investments than you would through traditional forms of saving or investing.
What is peer-to-peer lending?
To clarify, peer-to-peer lending involves individual investors who are anonymously lending money to other individuals or companies who are looking for loans. The investor has the ability to earn a healthy return on investment of up to 15% per annum, depending on the level of risk that they take on.
The investor will usually earn higher returns on their investment compared to rates offered with traditional savings account and ISAs - and borrowers usually access rates that are on par with low rate personal loans
and significantly lower than payday loans
Peer-to-peer lending platforms help to facilitate this action, acting as a marketplace for both borrowers and investors to connect on their terms.
With Fund Ourselves, the main features are:Invest from £1,000
– You can open an account with just £1,000 and you have the option to increase this as any time.Auto-Diversify™
- We spread the risk of your investment by diversifying it with at least 10 borrowers, helping you to get the highest expected return possible.Tax free
– We offer an Innovative Finance ISA
which means that you can receive up to £20,000 worth of savings tax-free.Easy reporting
– We have a dashboard that allows you to login and track your investments on a daily basis.
Return on investment is higher than fixed bonds or ISAs
For those investors looking to diversify their portfolios and earn a good return on their investments, peer-to-peer lending usually offers better higher rates than you would with a conventional cash ISA
or fixed-bond account, which makes it an attractive option for lenders.
You can choose the level of risk
With peer-to-peer lending, investors have the ability to choose the level of risk they are willing to consider – which means you have the potential to control your investments and have total transparency.
For example, if you are willing to lend to those with bad credit, you are taking on more risk but able to earn the highest returns possible.
If you prefer to play it safe, you can lend to people with good credit histories where the return is likely to be lower but less risky.
What are the risks?
Peer-to-peer lending is regulated by the Financial Conduct Authority and every lender has its own form of protection in place. However, it is still important to understand the potential risk involved, including:
- Borrower makes late repayments or defaults on loans
- Contributions not covered by the Financial Services Compensation Scheme
- Early withdrawal can affect rates
- You could lose part of all of your investment if your losses are not covered by provision funds.
There is always the risk that borrowers do not pay on time or at all – and how this impacts your overall return on investment. Any losses are not covered by the Financial Services Compensation Scheme.
However, there is protection in place by Fund Ourselves to ensure that investors can earn the maximize returns possible.
It is also noticed that whilst you have the option to withdraw your money at any time, this can affect the final rate of interest that you earn and maximum interest is usually available if you keep your money locked in for the full period e.g 12 months.
What protection is there for peer-to-peer lending?
At Fund Ourselves, we have a number of procedures in place to ensure that investors get the full returns possible.
Fund Ourselves maintain a provision fund to cover losses a result of defaults by borrowers.
We have a customer service team who are dedicated to following up on bad debts. In addition, we have a provision fund in place which can help to reimburse investors if the borrower does not make their repayments.