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A Beginner’s Guide to Peer to Peer Lending

In recent years you may well have heard more and more about Peer to Peer lending companies. However if you’re looking into to this option as a investing or financing choice then you’ll most likely appreciate all the information you can gather. This guide introduces you to Peer to Peer lending and tells you all about why this may make for an attractive option to you or your company.

How Peer to Peer Lending works
Peer to Peer lending may also be referred to as crowd-lending; this method of financing matches private lenders with those looking for individual borrowers. Additionally there may be companies with additional savings who may be looking to invest.

This system effectively cuts out banks, offering borrowers lower rates and investors better possible returns on investment.

This doesn’t mean however that the system is free from checks. Indeed, in many instances it may mean that lending conditions are more stringent, with borrowers having to pass credit checks.

There are various websites out there for Peer to Peer lending and each will manage the process for you. They will chase repayments on their client’s behalf so that lender and borrower never have any interaction.

Peer to Peer lending – For lenders
If you’re a lender rather than a borrower you’ll need to know that the money you earn isn’t tax free. You will need to declare it and how much you pay will depend upon whether you’re basic tax rate payer (where you’ll pay 20%), a higher rate payer (where you’ll pay 40%) or a top rate payer (where you’ll pay 45%). These figures are based on your earnings, rather than the amount loaned.

What the risks are and who it is suitable for
For the lender there are inherent risks associated with Peer to Peer lending. However this industry is now regulated, so you needn’t worry about unscrupulous companies who are governed only by themselves. Additionally your money may not be lent immediately and you may be waiting a few weeks before large sums are lended out.

Whilst this industry is growing quickly, with some amazingly successful partnerships between Peer to Peer Lending and companies, it must be understood that this is an industry that is still in relative infancy, and as such an appreciation of the risks involved is a must.

Peer to Peer lending: For the Borrower
If you’re looking to Peer to Peer lending as a borrower then you’ll be required to pass a credit check. Depending upon which website you use you may additionally need to present a business plan if you’re a commercial customer.
Prior to making any decisions in relation to which company to go through be sure to research previous experiences of past customers through both testimonials as well as review websites.