what is peer to peer lending?

peer to peer lending is the practice of lending money to individuals or businesses

through a ‘matchmaking’ service that connects lenders directly with borrowers.

Since the companies that o�er this service operate outside of financial institutions and are generally based online, their

overheads are low.

This means that they can potentially o�er higher approval rates for the borrowers, and

better interest rates than traditional institutions for the lenders.

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The practice is also known as ‘crowdlending’ and ‘crowdfunding’ and has grown hugely in

the UK over the last six years:

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1.0

1.5

2.0

2.5

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£ bn

2010

2015

2014

2013

2012

2011

£4.4bn

£2.2bn

£9.5m

£4m

£2m£1m

uk peer-to-peer lending volumes 2010-2015source: P2PFA

what are the benefits ofp2p lending?

It’s important to understand that your capital is always at risk in any investment...

...but as a result of reduced running costs and advanced technology, the

peer to peer lending model can benefit both the lenders and the borrowers.

what are the benefits of P2P lending for borrowers?

It supports UK businesses

The birth of the p2p industry has benefited the business sector by providing

easier access to finance and the marketplace borrowers have access to a large network of lenders to work with.

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Better approval rates for borrowers

One of the biggest advantages of p2p lending as a business is that you

can get approved easier than if you were working with traditional lenders, who tend to be very slow

and skeptical when making business loans.

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Typically, when you apply for a P2P loan online, you will get a lending decision within just 24hrs...

faster approval

...compared to some traditional lenders which can take weeks to

make a loan decision.

what are the benefits of p2p lending for investors?

higher returns

In the p2p market there are a range of the types of investments on o�er with loans to meet di�erent lenders risk profiles and income desires...

Lenders can expect higher returns than they would achieve with more traditional

investments, depending on their appetite for risk.

Access to a diverse range of investments

There are a huge range of investment deals on o�er in the marketplace, all giving you di�erent

levels of access to your funds and estimated rates of return.

Lenders can find loans to invest in secured across a range of asset classes from commercial,

property through to classic cars, along with a range of borrowers from high quality credit risks

through to businesses that present a higher degree of risk but could potentially produce a

greater return for the lender.

what are the risks?

...compared to some traditional lenders which can take weeks to

make a loan decision.

p2p websites are not covered by the Financial Services Compensation Scheme (FSCS) which

guarantees most UK savers up to £75,000 against losses per PRA-registered institution in the event

that they fold.

no protection from the FSCS

This risk is mitigated however by sites like Huddle as we ring-fence investor funds in a

separate client account to ensure that lenders can be repaid and aren’t left out of pocket in the

unlikely event that this happens.

defaulting borrowers

There will always be a small percentage of borrowers that default on their loans.

No p2p companies guarantee a return on your investment and the savings rate you eventually

get can depend on several factors including how long you choose to invest for, whether a

borrower defaults, pays late or early.

p2p investments are included in your Personal Savings Allowance that lets you earn up £1000 in interest tax-free every year. In the

past, basic rate taxpayers lost £20 in every £100 of interest that they earned.

paying tax

20

The new PSA allowance means that every person on the basic rate can now earn £1000 from interest before being subject to tax on it.

However, tax on p2p interest is not deducted by the p2p provider, so lenders must declare any income to HMRC and remember to set aside these funds so that they do not get a tax bill that they cannot fulfill at the end of each financial year. To find out more about this read more on the HMRC site.

The UK p2p Market

In the UK p2p lending has grown rapidly over the last few years, and in 2015, UK peer-to-peer

lenders collectively lent over £3bn to consumers and businesses.

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It’s a dynamic and growing market! At Huddle, we aim to provide unbiased and informative

content to educate you on every aspect of the peer to peer lending market so you can stay

informed and easily understand how it works.