23 September 2017 ~ 6 Comments

Considering Peer-to-Peer Lending? Do Your Homework First

Peer-to-peer lending

In a post-credit crunch world, peer-to-peer lending can seem like: The Answer We’ve All Been Waiting For. On the surface it looks like a win-win. Borrowers have access to large financial funding with more competitive interest rates than they would get from different niches such as the short term loan industry (i.e. Wonga) or indeed many of the other traditional routes of procuring capital. the trade off being that for peer-to-peer you need to arm yourself with the proper knowledge. Read on…

Regulation

Yet, as seductive as the idea is, it’s important not to jump into peer-to-peer (P2P) lending head-first. As with all financial decisions, throwing caution to the wind is not advisable and there have been P2P lending casualties. In the UK, for example, this fledgling industry is as yet largely unregulated, a fact which should set any sane person’s alarm bells ringing. As of the 1st April, P2P lending has been policed by the FCA (Financial Conduct Authority) which means there are now greater protections in place for both borrowers and lenders, but this new industry is still not covered by the Financial Services Compensation Scheme which covers any losses sustained up to £85,000.

Doing your P2P homework

So, before you get stuck in to any P2P lending service, it is strongly recommended that you do your homework. A free company check from one of the many online providers will give you insight into two crucial parts of the process:

  1. The platform itself
    With so many P2P platforms springing up left, right and centre, it can be hard to know which to choose – especially since they all operate different systems and take different approaches to lending. Some of these businesses fail. The most recent example being Quackle. The company blamed its failure on taking on too many poor quality borrowers who did not repay their loans. Yet, warning signs about a P2P platform may be visible in company data revealed by a quick, free company check. With a number of ‘entrepreneurs’ jumping on the P2P lending bandwagon, it is well worth your time exploring each company’s financials, legal issues, history etc. – and that of its company director to ensure you are not exposing yourself to unnecessary risk.
  1. Potential borrowers
    Not all P2P platforms allow you to specifically select who you want to lend money to. Yet others, like Funding Circle, do. On these platforms, it is highly recommended that you take the time to request a company check on any business you plan to lend to. You will be able to see credit reports, insolvencies and issues like CCJs, all of which should ring serious alarm bells which make you question your lending decision. All of these features of a company check should be red flags which suggest you may not see the returns you had hoped for – or even all of your investment back.

Due diligence = successful outcomes

But it’s not all doom and gloom. Doing your research shouldn’t rule you out of P2P lending altogether. When it works, this modern lending practice works brilliantly, matching businesses and individuals who have struggled to find finance, with lenders looking to make the most of their savings. Doing your research is all part of making P2P lending work for you.

Have you used P2P lending to enhance your savings? What research did you do before you felt comfortable enough to go ahead? Would you do it again? Share your experience and tips with our readers below!

Image source: http://farm1.staticflickr.com/55/135660233_1203b2b2c5_o.jpg

6 Responses to “Considering Peer-to-Peer Lending? Do Your Homework First”

  1. Carolee 28 April 2014 at 2:34 pm Permalink

    Does anybody are conscious of an economic institution that may produce a little personal bank loan of approximately $2000 for bad/no credit?

    NO Pay Day Loans!!!!!

    Among The Finest To Understand WHERE I’m Able To Obtain A LOAN, NOT Options!!! For Those Who Have ANY Options, Do Not ANSWER!!!!!

    Thanks.

  2. Rebecca 29 April 2014 at 11:40 am Permalink

    I’ve 2 charge cards – both with more than 35% utilization. I wish to remove financing (having a lower APR rate) to be able to repay either. Is that this advisable thinking about I’d add-on another inquiry to the or must i just leave my CCs in the greater utilization to carry on to pay for them lower? My cheapest c-score is really a 684 and greatest is really a 743 However just were built with a new house put into my credit history. I do not doubt which i might get financing for a price less than my charge cards- Among the finest to understand which would hurt my score worse. Thanks! [wow which was a mouthful] – Any input could be great 🙂

    I don’t know that i’m being too obvious. I’m just wondering which affects credit rating more— opening a brand new account (which may put another inquiry on my small credit history but repay my charge cards completely leading to % utilization) OR ongoing like I’m now and getting our prime utilization (35%-50%) on my small cards? Thanks!

  3. Karyl 7 May 2014 at 6:36 am Permalink

    I’ve a good credit score however i in addition have a education loan that i’m still having to pay that is on my small credit history is it feasible that i can get approval for an unsecured loan if that’s the case where?

  4. Isidro 7 May 2014 at 12:31 pm Permalink

    Are p2p file discussing illegal. basically legally purchase a compact disc from hmv and lend it to some mate it is not illegal ??? basically legally download an audio lesson off itunes for 79P and share it using the world on the p2p is the fact that illegal ??

  5. Tory 7 May 2014 at 12:31 pm Permalink

    is that this possible? if that’s the case, how do i hand out such legal financial loans? can one open moneylending biz besides IT biz to lend the extra money? i do not have moneylending experience however i will hire some employees to operate such biz my objective isn’t to place my surplus money idle but instead to improve my wealth, that we may use to grow my IT biz later on please suggest me thank u for ur solutions

  6. Sixta 9 May 2014 at 4:11 pm Permalink

    Not too im going to setup one, but anyway

    I suppose it’ll vary from business to business but does anybody know what is the typical price of establishing this type of company?

    As well as where perform the money allocate, for instance some cash visit offices and salaries i suppose. where else do money allocate?


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