Crowdfunding is a new investment phenomenon and one of the markets promising the best returns is peer-to-peer lending.
Peer-to-peer lending or ‘P2P’ as the term is known to financial experts, is where a group of investors pool their cash and then lend to several borrowers to spread the risk should the loan default.
Most P2P lenders pay competitive rates of interest, especially for commercial lending.
The returns are likely to exceed those of leaving the cash in a bank savings account – but don’t forget to declare any interest earned to the tax man.
Europe’s top three
If you are an investor looking at dipping into P2P lending, here are some of the leading platforms:
- Zopa – Personal borrowers can take out loans of up to £10,000. Zopa sets rates based on credit histories and lenders can offer rates and terms against what they feel the risk the borrower represents
- Funding Circle – A business market where lenders can spread risk across small businesses. The UK government has set aside £20 million to lend through Funding Circle. Borrowing ranges from £5,000 to £1 million
- Ratesetter – Ratesetter builds in a payment from the borrower to offset against late payments or defaults and is one of the only P2P lenders to do this
These three market leaders are the largest P2P lenders in Europe.
Other P2P lenders to consider are:
- Auxmoney – A German platform lending between 1,000 euros and 20,000 euros to personal borrowers. The platform claims to have more than 11,000 borrowers with loan debt of more than 50 million euros
- ThinCats – This platform says the average rate of return for investors is more than 10%
- Folk2Folk – A UK regional P2P lender giving interest-only loans secured against commercial property in Cornwall and Devon). Rates are around 7.5% and minimum borrowing is £25,000.
- isePankur – Another niche lender – this Scandinavian based P2P platform is the only one lending across borders in the European Union. isePankur also trades P2P loans
- FundingKnight – A UK platform that links borrowers and lenders without needing a bank or other financial services. Members pay a £500 joining fee and can lend up to £100,000 to small businesses
P2P is one form of crowdfunding – others include rewards in return for donations and equity funding, where investors take shares in start-up or early stage companies.