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Published on February 6th, 2014 | by Pete

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Peer to Peer Lending – The Future of Borrowing?

I don’t know about you, but I’ve been hearing quite a lot recently about this peer to peer lending business. Now, when I hear ‘peer to peer’, I tend to think of people hunched over computers, illegally sharing music and movies. However, it does seem that it can also be applied to more helpful things, such as lending and borrowing money. So, how does it work? Well, these services are basically online financial matchmakers, think of match.com for financial partners. If you want to borrow money, you can be matched up with someone who is hoping to invest some money, and make a decent return. So what is the point of this then? It’s not like there aren’t already hundreds of companies trying to entice you into borrowing. There are benefits – the peer to peer approach means that the middle man is cut out, allowing the borrowers to achieve lower, and more attractive rates, and the savers getting better headline rates.  The website makes a small amount of profit via a matching fee, but they do have a lovely website to maintain, and they are more likely to be smaller organisations, rather than big faceless corporations.

This new approach to saving and investing sounds interesting, although there is not a safety guarantee provided. Also, just because the scheme makes it sounds more like a couple of mates helping each other out, this does not mean that lending is guaranteed. Credit checks are still applied, and those requesting credit will be rated in terms of risk. As a bonus, the website will do all the repayment chasing for you – meaning that there is no need for making deals with dodgy looking blokes in the pub with low morals, and a thirst for violence! If this does appeal to you, and you are debt free, then it could be a good way forward for you. So, if you are comfortable with the idea of putting away money for a longer term, than it is worth investigating one of these schemes. An example of a successful UK peer to peer lending company is Folk2Folk who setup in June last year, and in just seven months have funded loans to businesses in Devon and Cornwall of over £21 million. There is of course, plenty of choice though.

So, the future is arriving – are you in a position to get involved?

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One Response to Peer to Peer Lending – The Future of Borrowing?

  1. moneystepper says:

    I’m a big fan of peer-to-peer and especially peer-to-business lending. Its especially attractive at the moment with such low interest rates available in savings accounts! I only got involved myself for the first time in December, but so far things have been going great – good service, good choice of loan options, good stats and information on potential lenders. Its so good I’m going to increase my asset allocation to P2P soon:

    http://moneystepper.com/financial-planning/peer-to-peer-funding-circle/

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