Information Technology especially the Internet is shaping our lives. Think of everything you did two decades back and you will notice how Internet has made lives easier. Whether it is booking tickets for your next vacation or finding information on a particular topic, you can do most of the tasks that required you to step out of your homes sitting on a couch watching your favourite web series (again a by-product of the Internet). The financial industry has been one of the early embracers of the Internet where technology has eased both access and servicing. P2P or peer to peer lending is a shining example of how Internet has revolutionized the financial industry. It has allowed investors to grow their capital and eased the lives of borrowers.
What is P2P Lending?
In simple words it is a practice where money is lent to individuals, groups of businesses over the Internet. There is no paperwork to be done or making visits to a bank or financial institution. These are governed by Internet platforms instead of traditional financial institutions. The platforms identify the needs of the borrowers and match them to the interest of the lenders. These services being offered completely online allows P2P platform to reduce their overhead costs as compared to traditional financial institutions. This benefits both the investors as well as the borrowers. While the borrowers benefit from lower rates and quicker processing while the lenders also enjoy higher capital growth compared to other forms of investment owing to the lower operating costs of the platforms.
It is also termed as crowd lending as there are several instances when groups of small lenders lend capital to large businesses. The lenders have control over the interest rates unlike the case with financial institutions that hold veto power as far deciding upon the rates is concerned. The ecosystem is highly competitive as lenders can compete for the rates under the reverse auction model. While the system doesn’t have the traditional government guarantee as far as guaranteeing of the capital, lenders can mitigate the risks and avoid bad debts by choosing their borrowers. They can also diversify their investments across different borrowers or multiple platforms.
P2P Lending in UK
United Kingdom was one of the first markets in the world where P2P lending gained in popularity. It was in the year 2005 that a company by the name of Zopa started with P2P lending in UK. While it grew at a slow place initially the financial crisis of 2008 gave a major boost to the P2P lending ecosystem. When traditional financial institutions faced credit crunch P2P lending platforms stepped into fill the gap. Since then this market has exploded attracting everyone from small investors to large investors looking to exponentially grow their investments.
United Kingdom today boasts of having developed a mature P2P lending market that has benefitted both the investors as well as the borrowers. Individual borrowers and MSMEs have been the biggest beneficiaries of this ecosystem apart from the investors who are seeing their money grow. While the P2P market isn’t governed by traditional regulations the evolution of this market has led to several best practices being adopted that are protecting the interests of the investors.
Best P2P lending Platforms in UK
Zopa is the first name on our list and this shouldn’t surprise anyone given the fact that it is the oldest P2p lending platform as we have mentioned previously. The fact that it has been able to survive in a dynamic market this long makes it stand out. Over the last many years this platform has attracted more than £4.5 billion in loans and counts more than 60000 active investors. It allows investors to get into P2P lending with as little as £10 in investments and offers wide range of investment products offering returns between 2 and 14%.
- Fast Invest
Launched in 2015 in a short span of time this is being counted among the best P2P lending platforms in UK. This platform has attracted investors as it allows them to invest in loans not only in the United Kingdom but in several other European countries. With more than 30000 investors and loans more than €40 million it is growing it terms of its market size and investor base very fast. The platform focuses on commercial loans and offers an average rate of return in the range of 14%. The buyback guarantee for most of its loans makes it stand out.
This was founded in 2010 and has since then established its reputation of being one of the safest P2P lending platforms in UK. There are more than 80,000 investors who have used this platform so far and have issued close to £4billion in loans. Unlike some of the other P2P platforms that often lock investors into a narrow category of loans RateSetter allows you to choose a range of options. While the average rate of return is low at 4.6% investors prefer it thanks to the low-risk nature of the platform.
- Property Crowd
It may not be as big a platform as some of others in our list but this is surely one that promises high rate of return for your investments. You can earn between 8 and 12% for your investments annually depending upon the kind of loan product you chose to invest on. As the name suggests this platform primarily focuses on loans in the property market where investors have the option of choosing between borrowers in residential, commercial and industrial developments.
- Funding Knight
If you have high appetite for risk and want to invest your money on a platform that offers high annual returns Funding Knight might just be the name for you. It is an extremely easy platform to get started with. Founded in 2011 this platform allows you to invest for free with annual returns ranging between 10-13%. This platform also offers investors the option to buy and sell loans in the secondary market. The built-in risk rating system comes handy for the users as this allows you to choose between loan options that are high risk-high return to low risk-low return.
- Investly UK
This is a P2P lending platform with a difference. Unlike the other platforms that we have talked about, his one focuses on receivable loans which are also referred to as invoice factoring. In real terms investors purchases invoices from big companies and offer them short-term loans. There are many people who have been attracted to this platform thanks to its high rate of annual return with is between 10 and 13%. You can get started with investing in this platform for as low as £13. The average loan period in this platform is around 30 days which lets you earn returns in quick time.
To sum up these are the best P2P lending platforms in UK. As you can clearly see each of these platforms have their own advantages and offer you to invest your money based on the investment goals you have and the kind of risk appetite you are comfortable with. Make your choice wisely and mitigate risks by spreading your investment across multiple platforms.
Summary – In this write-up we take a look at the best P2P lending platforms in UK and discuss why P2P platforms are a great place to invest your money.