How do I invest in Peer-to-Peer Lending

How does it work for me, the investor?

A Basic Overview:
Step 1: Deposit your funds into your chosen P2P platform, they will then split your investment across a diverse range of loans, for a set loan term, or allow you to manually select your loans.
Step 2: The borrowers draw-down the loan throughout the loan term and repay the debt with interest, under the watchful eye of the P2P platform.
Step 3: You receive the interest on the capital investment and can watch as it matures or access the funds early depending on the account you open and with which platform you open it with.

Who are these Peer-to-Peer platforms?

A peer-to-peer lending platform is the company (platform) that facilitates the loan of your funds to vetted borrowers - be assured, you are not investing in the P2P platform, they simply facilitate the loan. Industry leading platforms are: Zopa, Funding Circle and RateSetter, having made over £3bn worth of loans in approximately a decade with the latter two platforms only a few years old.

Peer-to-peer platforms act as “investment cupids” uniting investors and borrowers, matching the peers based on various criteria such as loan rate, term and risk profile of the borrower.

The UK market has reached a stage of maturity where new entrants into the market are starting to decline. In 2014 six new peer-to-peer lending platforms emerged compared to 2015 where there was only one.

How is my investment lent out?

Peer-to-peer platforms cherry pick borrowers based on their loan requirements and ability to repay debt. Most big platforms base their credibility on their lending criteria.

Many P2P platforms have an auto-bid function, meaning invested funds are diversified (split) across several loans, reducing the risk of losing money. In 2015 42% of peer-to-peer business investors used the auto-bid function, which ensures peer-to-peer lending platforms maintain robust underwriting processes.

With some P2P products you, the investor, can decide whether to auto-diversify your investment or hand-pick your loans. Maybe a property development that is eco-friendly catches your eye? In this instance you can conduct your own due diligence and control the parameters of your loan.

Rule 101 of Investing:

Diversify your funds, don't put all of your eggs in one basket.

Standard Investment Process

It's far simpler lending your funds through a peer-to-peer platform than other traditional investment mediums; the platforms are online, so lending funds, reviewing your account or communicating directly with the platform is only ever a click away.

Wellesley & Co, one of the UK's fastest growing platforms has a few simple steps to investment:

  • Register/open an account online
  • Choose product
  • Send original documentation to Wellesley offices (details on website)
  • Send money and begin earning

As you can see, different processes. Be sure and compare by clicking through to the given platform to find out their specified steps to investment.

RateSetter has a 5 minute steps to lending process:
  • Register personal details
  • Verify bank details and address
  • Submit amount to lend
  • Choose interest rate
  • Lend