Social Lending -
The New Idea

Social lending is a relatively new phenomenon. 

Basically it means lending your money to someone you do not know.  It is also known as Peer to Peer lending (P2P).


Doubt regarding any unknown subject is likely to send a shudder down most peoples' spine, but this need not be so.


When you deposit your money with a bank are you 100% sure to whom they lend your money????  Most large banks and multi-national companies loan millions of pounds (your money) overnight in the markets in an effort to make money.

As with almost everything in life, there are ways of going about things that can eliminate the risk.

In most  cases, with a certain amount of risk there is quite a substantial gain.  In addition it is possible to obtain a safety guarantee if you are prepared to leave your money with one of lending companies mentioned below for a specified period, say 5 years.  More bang for your bucks!

Everyone knows that lending money to banks, i.e. via deposit accounts, ISA’s or similar schemes is a virtually pointless exercise these days as far as earning interest is concerned.

Tesco Bank have just reduced their interest  rate to 0.75%.  Hardly worth having.

With these social lending sites lenders can loan as little as £10 pounds up to £25,000 and receive interest accordingly.  Plus you set the rate at which you are prepared to lend, according to the risk factor.  Social lending is a case of risk versus reward.

This type of lending is unique in that your money is invested in £10 segments to each company.  Your money, together with that from other investors,  goes to form the total amount the borrower wishes to secure.  Therefore, if you are only lending £10 to each borrower your risk of loss is considerable less.

For a relatively small investment of £200 it is possible to earn £8.00 interest in a year.  Definitely not possible if the money was in an ordinary bank account or ISA.

Equally, if you need to borrow money the rates for borrowers are lower.  You will need to go through the usual checks on your suitability.

Could the answer be found in one of these three  lending websites? 

www.fundingcircle.com  This site says the average rate return is 6.2%  This site is extremely easy to navigate and is very user friendly.

www.ratesetter.com  This site has a calculator on the Home Page for use by both borrowers and lenders.  It also states it has ‘matched’ over £71m of funds.

www.zopa.com  Again features an easy calculator on the Home Page which will show how much a loan is likely to cost. 

All very interesting and probably worth exploring, particularly bearing in mind the worthless rates of interest on offer by the main banks, etc.  The names given above are not in order of preference, just strictly alphabetical.

The author has deposited a small amount of cash with each of these companies, so interesting and hopefully fruitful times are ahead.

These three companies have formed themselves into an alliance to oversee the workings of this new concept in lending.  In addition they will be regulated by a new Financial Conduct Authority (FCA).  These Peer-to Peer companies (P2P) are already monitored by the Office of Fair Trading but responsibility for regulation will pass to the FCA in April, 2014.

If you intend being a borrower or a lender, as in all things - do your own research.


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