7 Common Myths About Peer-to-Peer Lending
(Capital at risk - Past performance is not an indicator of future results. Not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice. Please note that the parameters contained in this blog are subject to change as our business evolves).
When it comes to investing – and this applies to practically everything in life - it’s only through seeing the whole picture, with all its light and shade, that we can accurately interpret what’s in front of us.
Back to basics just for a moment, then.
What is Peer-to-Peer Lending?
P2P lending matches up investors who are willing to lend with borrowers. These borrowers could be individuals, businesses, or as is the case with easyMoney, property professionals looking for bridging loans or development loans for property projects.
P2P completely cuts out the middleman, in this case, high street banks, which in recent years have proved somewhat reluctant to lend to smaller companies.
The P2P platform assesses an application and determines the credit rating and/or risk of the applicant, after which an appropriate interest rate is assigned.
Regarding easyMoney, we’re an Innovative Finance ISA provider. Our online P2P platform enables clients to invest up to £20,000 tax-free per financial year, with interest on the loans paid monthly. We should point out that an IFISA is not a savings account; it’s an investment, and as such, can never be risk-free. You could say that we’re back to unicorns again: investing does NOT come with a cast-iron guarantee – or a guarantee of any sort. Why? Because it doesn’t exist.
So, let’s get back to those myths. And, here’s a monolithic mega-myth to kick off with:
1. Peer-to-Peer Lending is a new fad. It’s a flash-in-the-pan concept, here one day and gone the next.
Actually, no. Established in the UK in 2005, lending that removes a traditional intermediary has an anecdotal history that stretches back to informal networks in pre-industrial France.
Coming up to date: moreover, it’s seen dramatically increased growth in consumer demand since its arrival. The P2P lending market experienced a compound annual growth rate of about 25% during 2014-2019, and its future is forecasted as a strong one.
2. Peer to Peer Lending is Just One Product
P2P loans can be secured or unsecured and are made to an individual (for personal or business reasons), a company (for example, for invoice finance), a charitable organisation, or to property professionals ( as with easyMoney’s IFISA). There are in fact, several different companies offering distinct investment opportunities through a myriad loan types.
3. You Need Lots of Money to Get Started
Did you know that with easyMoney, you can invest as little as £100?
It goes without saying that your return will most likely depend on the loan, its terms and conditions, the sums involved and your attitude to risk. Still, P2P lending in general allows most people to make a relatively low-entry level into this lending space. Plus, with easyMoney in particular, you’ll have complete transparency and control over your account.
4. It’s Not Regulated
IFISAs are not covered by the Financial Services Compensation Scheme (FSCS) because they’re peer-to-peer investments. However the UK the P2P lending market is rigorously regulated to protect the interests of investors – and easyMoney is no exception. We’re fully authorised and regulated by the Financial Conduct Authority (FCA #231680).
5. It’s Extremely Risky
Nearly all P2P lending carries with it a degree of risk.
Whilst some platforms offer asset-backed loans, some do not, so it’s always useful to understand how your money will be returned to you in the case of a default. Here at easyMoney, we lend to property professionals with our loans backed by UK property, which is secured on a first or second charge basis.
Our senior team has many years of combined experience in property. To date, we’ve never made a single loss on any of our loans. How? Well, in our opinion, undertaking rigorous due diligence on all borrowers and the properties against which your money is to be lent has played a key part in our success. Past performance is not an indicator of future results.
We’d recommend that you discuss any queries or concerns that you may have with the our team.
6. You Don’t Know What Rates You’re Getting
Most P2P Platforms will convey an expected, or target rate when you become a client. This is because we’re talking about investments, not savings. With easyMoney, the actual rate of return could depend on various factors – for example if there is cash drag, or a fall in the value of the property.
This is where sector know-how comes in. In our opinion, understanding real estate – its fluctuations, strengths and likely growth – will provide a strong foundation for a robust return. Ask us about diversification, that is, how your investment will be spread out between lower and higher risk assets.
Regulated firms are required by the Financial conduct authority to publish an annual Outcome Statement which details the actual rate achieved by investors on their platforms.
7. You Can’t Get Your Money Out
Many P2P lending platforms offer a secondary market, but liquidity will not always be guaranteed as you will have to sell the loan.
With easyMoney, you can request to sell any loan which is performing and not within one month of repayment. In order to sell there must be new investors willing to buy the loans.
Our IFISA is a flexible ISA, meaning that you can take money out without the funds losing their tax-free status provided you repay the money back into your account before the end of the tax year it was taken out in.
You should always take independent financial advice before making any investment and of course, every individual will have different needs, so one size will certainly not fit all. All reputable P2P lending platforms, including easyMoney, will take the time to explain the risks.
All the facts and figures presented are accurate at the time of posting.
easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.
easyMoney is the trading name of E-money Capital Ltd, a company incorporated in England & Wales. Registered office is 5 Fleet Place, London, England, EC4M 7RD (Company No. 04861007). E-money Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA) #231680.