image of people in finance broker meeting

How does Peer to Peer Lending Work?

Peer to peer lending platforms hit the financial market about a decade ago – but there are still many Brits who have never heard of it or don’t understand how this type of borrowing works. Alternative finance solutions such as crowdfunding and peer to peer lending can help businesses access cash which wouldn’t be available to them from a bank, and is also a way for investors to get a healthy return. Peer to peer lending schemes can also be used for personal borrowing, to fund debt consolidation or home improvements for example.

Because this is so far away from traditional lending, it can be difficult to understand. Genie Lending’s peer to peer specialists explain below everything you need to know about peer to peer lending.

Who am I borrowing off?

The main distinction between this type of lending from others, is that you’re borrowing money off money rather than a financial institution. A group of small investors will lend you the money instead of the bank, and you’ll still have to pay an interest rate when repaying it. Typically borrowers will pay less interest than a traditional bank loan, and lenders get more interest than they would if they had cash sat in a savings account. This is why peer to peer lending has been so successful – it has advantages for both sides.

To access peer to peer lending, you will need to contact a specialist broker or join up to online funding websites. These will help match borrowers with lenders and arrange a peer to peer loan on your behalf.

What is the difference between peer to peer lending and a bank loan?

First of all, it is much easier to access finance through peer to peer lending than get approved for a traditional high street bank loan. Secondly, you should understand that you are lending off individuals rather than a financial institution, and because of this fact you are likely to pay less interest on the loan.

Is it safe?

From a borrower’s point of view, it is just as safe lending from peer to peer platforms as it is from a bank. The risk is on the side of the investors, as they can’t be certain you will make all the repayments. However, the peer to peer lending industry has gone from strength to strength. One of the biggest players, Funding Circle, lends £65.4 million a month around the world. The sector has also been regulated by the Financial Conduct Authority since 2014 to ensure best practices by alternative finance providers.

Find out more about peer to peer lending on our website or by calling us for advice.