Peer to peer lending is also known as P2P lending. It's when someone who wants to lend their savings is matched up with someone who wants to borrow money.

The lender wants to see a good return on their investment and the borrower wants a low interest rate.

It's not the same as using a savings account. There is more risk involved. It's investing, more than it is saving.

How does peer to peer lending work?

You could lend to an individual, a start-up business or even a group of individuals.

You'll lend through a specially designed peer to peer lending platform. These lending companies are usually run online. There's usually a minimum amount you'll have to invest.

You'll be able to send money to the P2P lending platform and choose who to lend to. They'll then repay your money, with interest, over a fixed term. This can range from a month to six years.

The peer to peer lending platform you're using will chase the repayments on your behalf, so that can be helpful as it minimises the input needed from you.

Is investing in P2P lending worth the risk?

Peer to peer lending, UK wide, can offer a higher return than savings accounts. That's because your money is lent to people and businesses. But the important thing to remember is that this comes with far more risk. If someone borrows your money, you could lose some or all of it if they don't repay you.

Money invested in peer to peer lending isn't protected under the Financial Services Compensation Scheme (FSCS). This means you could lose your money if the company goes bust.

You should only really invest in peer to peer lending if you can afford to lose the money, if the worst happened.

How can I find the highest return on peer to peer lending, UK wide?

Our peer to peer lending account comparison table above will help you find the highest return on P2P accounts.

But it's crucial that you understand the risk before you invest. Here's more information on how peer to peer works and some of the risks.

What exactly are the risks of P2P lending, UK wide?

P2P lending, UK wide, comes with many risks.

If your investment isn't repaid by the borrower, there's a chance you could lose some or all of your money. There are no guarantees.

If you put your money into a savings account, you'll get 85,000 of protection under the Financial Services Compensation Scheme (FSCS). This means that if your bank went bust, you'd be protected. But peer to peer lending isn't covered by the FSCS.

Many P2P lending platforms have their own financial compensation scheme. These are designed to protect you from failed repayments from borrowers. But, these schemes have caps on them. So, if lots of borrowers miss their repayments, there's still a chance you could lose your money.

Are P2P lending accounts taxed?

You do have to pay tax, but unfortunately this won't be taken automatically by the P2P lending company you're using.

You'll have to do a self-assessment form for HMRC each year, to declare how much money you've made from your peer to peer lending.

The exception is when you invest in an innovative finance ISA. These are tax free.

Here's more information on how investments are taxed

Do all investments in peer to peer lending, UK wide, offer a fixed return?

No, they don't all offer a fixed return. Some peer to peer lending companies offer a variable return instead. This gives you the opportunity to choose how much you get.

Sometimes, a P2P lending company matches you with potential borrowers, which could be a person or business. Then, you and other investors bid to lend your money to them.

If a borrower accepts your bid, they'll borrow your money over a set term. They'll pay you back monthly as if they were paying back a loan to a bank.

You could get a higher return compared to a fixed P2P account by doing it this way. However, you could also get underbid by another investor and have to wait longer to start making money.

Can I invest as much as I want into P2P lending, UK wide?

In days gone by, you could have done. But the Financial Conduct Authority rules changed in 2019.

Now, peer-to-peer lenders can't put more than 10% of their investable assets into peer to peer lending. And they must not invest their main residence.

What impact has the Covid-19 pandemic had on peer to peer lending?

The Covid-19 pandemic has had a considerable impact on P2P lending.

Some lenders have been left unable to access their money, due to the effects of the pandemic on borrowers.

Can I get my money out early?

Some P2P lending platforms give you the opportunity to get your money out early. They do this by matching your existing loans with alternative lenders.

However over the past year there hasn't been as much demand due to the pandemic. You might have to wait months to get your money out.

Peer to peer lending FAQs

Q

Is my money safe in a peer to peer account?

A

No, if a P2P company goes bust you could lose all or some of your money so make sure you understand the risk before you invest.

Q

Can I withdraw money from my P2P account?

A

Only at the end of the term, but sometimes you can sell your investment to another investor to get your money back.

Q

Where can I open a P2P account?

A

Peer to peer investments are only available online, our table helps you filter each account by the return offered and where your money will be invested.

Q

How can I reduce the risk to my money in P2P?

A

If you invest your money with a larger number of borrowers, there is a lesser risk that your money will not get repaid.

Q

Can I find out how stable a P2P company is before I invest?

A

Yes, by looking at the percentage of completed repayments they had from previous investments. This is usually found on their website.

About our peer to peer investments comparison

Q

Who do we include in this comparison?

A

We include peer to peer investments from our panel. They are regulated by the Financial Conduct Authority (FCA).

Here is more information about how our website works.

Q

How do we make money from our comparison?

A

We have commercial agreements with some of the companies in this comparison and get paid commission if we help you take out one of their products or services. Find out more here.

You do not pay any extra and the deal you get is not affected.

Last updated: 22 March 2021