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What is Peer to Peer Lending?

A great alternative to traditional savings accounts is peer to peer funding. It is a debt financing service which allows consumers and businesses to borrow and lend funds using an online platform. It eliminates the bank as the middleman. Since the loan amount is split up into parts, a lot of different agents can lend loans. Ever since the invention of money, people have been lending and borrowing money. The Peer To Peer Lending is a convergence between informal funding and collective financing; this is accomplished by mobilizing the existing relations such as family, friends or professional colleagues. The progressive growth of the internet and social media has boosted the potential and scope of peer to peer funding by enabling these platforms to establish online marketplace which acts as an intermediary between the borrower and the lender. This means lenders and borrowers don’t have to have social relations to make transactions happen. Instead, the transactions are based on borrower’s credit information along with underlying assets backing the loans. Investors in this type of lending can be both institutional lenders and private individuals, and these platforms allow conventional credit institutions like banks to participate in the funding. Investors earn the rewards as interest which depends on the borrower’s risk of default and the loan term.

How is Peer to Peer Affecting?

Peer to peer lending is a fast-growing industry which has gathered popularity among new and old investors. Its unique feature is that the investment made through it is tax-free; the interest that investors earn is never taxed. There are a lot of Innovative Finance ISA, some new and some experienced in the market that offer Innovative Finance ISA. Peer to peer lending platforms involve investors that give loans to businesses or consumers in return for an interest rate, which is higher compared to the cash ISA interest rates. This type of investment offers an alternative to people who want high returns than the cash ISAs; however, they have low volatility compared to stocks & shares. It is a type of banking that removes the middleman. However, with p2p, there still is a middleman which is the platform that investors or lenders use. Nonetheless, it does cut down a lot of the cost which a bank incurs as a middleman; this means that the investors get better returns without bumping up interest rates for borrowers. IFISA has different sizes and shapes, lending loans to individuals, property developments, small businesses, refurbishments or even renewable energy projects. Some of these investments are secure while some are not.

What is p2p lending?

Peer to peer lending is direct investment without involvement of any financial institute. Commonly peer to peer lending is done through online platform. Both lender and buyer are matched on the platform and then the loan proceeded. Peer to peer lending offers both types of loan secured loan and unsecured loan.

How does p2p lending work?

•             Peer to peer lending is very easy process and has enhanced features. All transactions are recorded and the money is sent through an online platform.

•             Potential buyer interested to borrow loan have to fill the application on an online peer to peer lending platform.

•             Peer to peer lending receive the application then determine the risk factor and then make decision.

•             When application is approved then the applicant can receive available option

•             After that applicant decides on which option they prefer.

How much can you invest in an Innovative Finance ISA?

The investment rules are same as cash ISA or stocks & share ISA. The annual ISA allowance that you can invest into an IFISA is £20,000.

How can IFISA benefit you?

Any interest paid on loans has an ISA wrapper, and it will remain tax-free. Money paid into an Individual Savings Account (ISA) doesn’t get taxed, and any money taken out remains tax-free as well. 

What are the risks involved in an IFISA?

The Innovative Finance ISA has its own little risks; the tax wrapper is a government-backed way of investment. However, investing online can be risky; therefore, the returns are often high, from 5% to 7%, compared to the returns from banks and building societies. Peer to peer lending is a somewhat new concept, and the market has a long way to go before the failure rates can be assessed. Many peers to peer lending platforms have protection in place that covers bad debts since it is not protected by the Financial Services Compensation Scheme. Investors may lose part of or all of their investment and have no recourse to compensation. So, before investing, you should check if your platform has some kind of protection plan in place or not. 



Daniel Zayas
Daniel Zayas
Mars is a content writer and founder of Hesolite the place for you to get SEO tips, backlinks backlinks. He gained extensive knowledge by doing researches on various technology projects. You will find his SEO-related contributions on top sites online.
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