Five Questions About: Peer-to-Peer lenders

15  January 2013

Peer-to-peer lending? Is that just for Lords?

No, it’s social lending and is available to anyone. Peer-to-peer lenders simply put those who need a loan in touch with people prepared to lend them money.

What’s in it for me?

You get to choose how much interest you want to charge. It needs to be reasonable, otherwise no one will want to borrow from you. But rates you can get, from 5-6 per cent, are much better than that on a savings account, at 3 per cent or less.

That sounds good. But isn’t it risky?

If you lend to small businesses then there’s always a risk that they go bust and you lose your money. However, bad debt levels are quite low, at less than 2 per cent, and you can spread your money around among different borrowers to reduce the risk.

Is my cash protected by the regulator?

Not at the moment but when the new Financial Conduct Authority starts up next year or in early 2014, those using P2P lenders should see their cash protected by the Financial Services Compensation Scheme.