With the current UK inflation rate sitting at 2.9%, it’s important to me to preserve my current wealth, never mind generate more wealth, look at it like this, if I have £1000 saved, it will be worth 2.9% less next year… £29, I would rather make £29 than loose it, which is why peer to peer lending is interesting to me.
So, this post is going to cover my views on Peer to Peer lending, what it actually is, how it works, and the company I use.
I first heard about peer to peer lending in a YouTube video, yes, I watch a lot of YouTube videos about money, and thought it sounded interested, so I googled it, and I found a company called Funding Circle, I did my research on them, and decided to sign up.
Check out my post, how to make a budget so you know how much you can afford to invest!
What is peer to peer lending to start with?
Well, peer to peer lending is basically this in short, lots of people give money to a lender, the lender then gives it out as a loan to someone else, and charges interest on the loan, you, the investor, get paid some of this interest, and the lending company takes their cut. So far, in about 1 week, I am up 0.25%. Now, that doesn’t sound much, but if I keep getting this rate, it will work out about 13% in the year, my Funding Circle account states that I will get 7.5% per year, so I will keep you updated on this on my Investments Page
Why Peer to Peer Lending?
Good question Adam, good question.
Well, I don’t want all my money invested in stocks, bonds, and other related assets. I would like to have money invested elsewhere, which is basically the reason I chose peer to peer lending.
Lets say the market crashes, and I had all my money invested in it, that would be a pretty shitty day, but, if I have my portfolio spread out across a number of different investments, and investment areas, then it might not hit me as hard. Peer to peer lending is also pretty easy to do, deposit money, and watch it grow, hopefully. It doesn’t really require any research, apart from finding a company to invest with.
Is it risky?
Peer to Peer Lending, or P2P Lending, took off in the min 2000s, and since then, it has become an ever growing market, popular among investors.
Unlike regular lending, peer to peer lending provides the potential for greater returns for lenders, and lower interest rates for borrowers, making it great for both sides.
Answer the f*cking question! Is it safe??
Well, my answer to this is, yes, it it safe. For me, I have chosen a balanced portfolio model, which currently, at the time of writing this post, will gain me 7.5% return over the course of a year. What is a balanced portfolio? Well, basically, a mix of high and low risk borrowers, with a few more low risk, than high risk ones included. Check the image below for a better idea.
Borrowers are graded on risk using letters, so an A+ borrower is one who is low risk, and E, on the other hand, is a higher risk borrower. My portfolio model includes them all as I said before, I like risk, as they say, no risk, no reward.
The Signup Process – Funding Circle
The signup process is pretty simple, once you have signed up, deposit some money, in my case, I dropped £100 into the account, as this was the minimum I could invest, plus, I am only starting out with Investing, so I’m not loaded..
When signing up, I was given a two options for my risk, I like high risk things, I am young, and have time to gain lost money back, so I choose the model, Balanced, which had the highest return rate. I have explained above what this is, so read the article again if you don’t understand…
Once the account was setup, I was confused, I had money in the account, but couldn’t for the life of me work out how the feck to give a loan, so I called Funding Circle, and spoke with an advisor, and, just like everything, as soon as they answered the phone, £20 was out of my available balance, and had been given as a loan. Typical… So, after that pointless phone call, I realised that Funding Circle automatically distributes my money, and I don’t have to do anything… FREE MONEY!
After an hour or so, my total balance was being lent out to borrowers. See the screen shot below.
You can see, it displays the risk band of the borrower, number of repayments… read the rest for yourself!
How do I get paid, and when do I get my interest?
Well, lets take an example from above. Look at the first row, Working Capital Loan. I have lent £20 to this company, they are repaying me over 24 months, with an interest rate of 7%. The next repayment is on the 16th December 2017.
On this date, I will get £0.83 (20/24 = 0.83) credited to my account, and whatever interest I have gained on the loan so far. Once £20 is built up again in my available balance, this will be lent out. Why £20, well, £20 is the minimum you can lend.
Another note, as you can see from the image above, this loan is in the risk band A, meaning it is a low risk loan.
There are some nice features on this platform too, like checking out the name of the company you are lending too, how much their total loan is, and how long they have been trading for, though I will not post a screenshot of this in public.
Hopefully this article helps you understand Peer to Peer Lending a little better.
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