IFISAs vs. Regular Peer-to-Peer Lending. What’s the Difference?
(Capital at risk - Past performance does not guarantee future results)
Sometimes, the world of finance can seem horribly complicated, and in our opinion, equally off-putting. Here’s our straightforward guide to the differences between an IFISA and “regular” peer-to-peer lending. There are some key distinctions which we think are definitely worth knowing about.
easyMoney is a peer-to-peer (P2P) lending platform, enabling you to invest in an Innovative Finance Individual Savings Account or IFISA for short. IFISAs have been around since 2016/17, and in a nutshell, the money that you lend – in easyMoney’s case to borrowers in the property sector – gains interest, that’s paid to you on a monthly basis tax-free.
So, it’s P2P lending, but we’ll explain more.
What you need to know about peer-to-peer lending
Never the most innovative or popular of institutions, it’s not always easy to qualify for a loan, especially in the last year or so due to the difficulties caused by Covid.
Step forward P2P lending, an increasingly popular way to get funding without applying to the bank.
P2P websites operate as online marketplaces, acting as financial matchmakers to bring together businesses and individuals, or groups of individuals. There are those who wish to lend, and those who wish to borrow, so it’s an advance win-win situation – or it could be.
The first website P2P platform was launched in 2005. It was undoubtedly a game-changing idea and pretty niche at the time,
However, here’s a “did you know” fact: people have been lending to and borrowing from each other well before that. Actually, here’s one account of peer-to-peer lending in 18th Century France.
These markets functioned typically in small circles, where people living in neighbouring areas exchanged goods and cash for deferred payments, often being connected to more than individual at any one time.
Sounds familiar. With easyMoney, the money you lend is divided automatically between several borrowers, enabling you to diversify your portfolio and mitigate risk.
Getting started is easy: Open an account, choose a product according to the amount you would like to invest, and start to earn interest. At easyMoney, we pay the interest monthly and we also give to our investors the opportunity to take advantage of our compound interest.
Important things to know
We’ll start with the most essential fact, and the most obvious:
- Any interest that you earn through P2P lending will be seen as income. HMRC will want to know about it. That is, it will be taxable. Your personal savings allowance is however considered here, but if you’re a higher rate taxpayer, this amount is only £500. Compare and contrast IFISAs, below. Especially those from easyMoney, as our rates can be as high as 8% - TAX-FREE.
- Risk-free investments don’t exist, although many of us would like them to. Your borrower may default. Likewise, if your loan is repaid late, or early, you could make less of a profit than you’d hoped.
- To mitigate risk, easyMoney takes a conservative approach. Each loan is assessed individually, with a weighted risk matrix based on long experience and expertise in property and lending. We allocate a score to each loan from A to J; A being the lowest and J the highest. Generally, we lend only against those that score A, B or C. Additionally, we secure every loan on our platform with a legal charge – meaning that should a borrower default, we will try to sell their property, although recovering funds could be affected by any downturns in the property market. Also, easyMoney’s conservative methodology reflects the sums we lend:
- On bridge loans up to 75% of a property’s value
- On development loans, a maximum of 75% of the initial value of the property, plus up to 100% of development costs. Taken together, our total lending is capped at 70% of the anticipated Gross Development Value (that is, the price that the value considers that the developed property will sell for).
- P2P lending is not covered by the Financial Services Compensation Scheme, although they must be regulated by the Financial Conduct Authority in order to trade.
An Innovative Finance ISA with easyMoney
The peer-to-peer lending concept is essentially the same, but with the following differences:
- Again, at easyMoney, we create a diversified portfolio (as with other P2P lending platforms) but your selected borrower or borrowers will be businesses within the property sector and your loan backed by UK property.
- We’ve touched on interest rates, but with easyMoney, you could, depending on how much you invest, reap great rewards, with interest returns of up to 8%.
- Let us re-iterate that with your allowance of £20,000 per annum the taxman is left out of the picture. The interest that you receive on a monthly basis from us will be completely tax-free.
- easyMoney’s IFISa is flexible. As an investor, you have the opportunity and freedom to withdraw your money, and importantly – to put it back again without affecting your £20,000 annual allowance.
- To open an easyMoney IFISA you’ll need to be a UK resident with a UK National Insurance number. That’s it – it’s extremely easy.
Also, as part of easyMoney’s transparent approach, please be aware that the IFISA is not covered by the FSCS, but that we are fully regulated by the FCA.
If you’re thinking about an IFISA, the time could be now. We’re pleased to note that our slowly recovering economy has boosted the property sector, and we’re feeling positive about market growth throughout 2021, and beyond.
Please get in touch with us for more information. We’re looking forward to hearing from you.
e-Money Capital Ltd trading as easyMoney is authorised and regulated by the FCA (FRN 231680). Instant access to your money can’t be guaranteed. The property industry is subject to market conditions and therefore your capital is at risk. Peer-to-Peer Investments are not cash savings accounts so they are not covered by the Financial Services Compensation Scheme (FSCS). Past performance does not guarantee future results. Tax treatment is dependent on individual circumstances and subject to change.