Peer to Peer Lending
Peer to Peer (P2P) lending sites match up savers, who are willing to lend, with borrowers - either individuals or small businesses. By cutting out the middleman and not having the overheads of traditional banks, P2P sites can often offer you more favourable rates, whether you're a lender or a borrower.
P2P lending is similar to saving with a bank, but pays much higher rates of interest. However, unlike a traditional savings account, your money isn't protected and there is an element of risk. Also, with P2P, you should be thinking long term for most lending sites, as withdrawing money usually involves paying a fee or waiting for loans to be repaid. However, if you are looking for passive income these sites work well as whilst the original loan isn't always easily accessible, the interest payments that you receive are.
Most P2P businesses work through a website, with varying degrees of complexity. In recent months many of the P2P sites have undergone user interface changes to make them simpler and more like savings accounts. Whilst there is a risk that borrowers don't repay their loans, the P2P sites usually mitigate this risk by spreading your money across many borrowers and/or having insurance/provision funds to pay out if someone defaults.
It's also possible to invest in P2P through an Innovative Finance ISA (IFISA) as well as a standard non-ISA account. This means that potentially you could earn passive income through P2P without having to declare it for tax purposes. You do have to follow normal ISA guidelines however, and are only allowed to open one IFISA per year (alongside a stocks and shares ISA and a cash ISA) and can only invest up to the current year's limit (2019/20 tax year = £20,000).
It's true that some P2P companies have fallen by the wayside, but there are a number that have been trading for many years and now have businesses that run on fairly solid foundations. It's these established players that you should look at if you wish to look at P2P as a passive income opportunity. As with everything to do with investing, diversification is important here as well, and so if you are going to invest through P2P, then you should think about spreading your investment through more than one P2P company. Below is one of the more established P2P companies, if you click on the heading for the company it will take you directly to the P2P company.
P2P lending is similar to saving with a bank, but pays much higher rates of interest. However, unlike a traditional savings account, your money isn't protected and there is an element of risk. Also, with P2P, you should be thinking long term for most lending sites, as withdrawing money usually involves paying a fee or waiting for loans to be repaid. However, if you are looking for passive income these sites work well as whilst the original loan isn't always easily accessible, the interest payments that you receive are.
Most P2P businesses work through a website, with varying degrees of complexity. In recent months many of the P2P sites have undergone user interface changes to make them simpler and more like savings accounts. Whilst there is a risk that borrowers don't repay their loans, the P2P sites usually mitigate this risk by spreading your money across many borrowers and/or having insurance/provision funds to pay out if someone defaults.
It's also possible to invest in P2P through an Innovative Finance ISA (IFISA) as well as a standard non-ISA account. This means that potentially you could earn passive income through P2P without having to declare it for tax purposes. You do have to follow normal ISA guidelines however, and are only allowed to open one IFISA per year (alongside a stocks and shares ISA and a cash ISA) and can only invest up to the current year's limit (2019/20 tax year = £20,000).
It's true that some P2P companies have fallen by the wayside, but there are a number that have been trading for many years and now have businesses that run on fairly solid foundations. It's these established players that you should look at if you wish to look at P2P as a passive income opportunity. As with everything to do with investing, diversification is important here as well, and so if you are going to invest through P2P, then you should think about spreading your investment through more than one P2P company. Below is one of the more established P2P companies, if you click on the heading for the company it will take you directly to the P2P company.
Kuflink is a specialist P2P company that focuses on lending to property developers. They also commit their own money to each development and so have ‘skin in the game’ for each investment. Their track record is strong, they have won a number of awards and unlike many other P2P companies, have kept lending and paying out during the Covid-19 pandemic. You are able to choose the investments you are interested in, can earn up to 7% interest, paid out either monthly or annually and can invest amounts from as little as £100. This peer to peer lender has continued to lend and accept new investments during 2020. This is now one of my top choice P2P lender.
* On this website there are a number of referral links which will pay out a bonus to both you and Finance55 should you click on the link and subsequently sign up for the service. This is a normal marketing strategy for many companies as it gains them new customers with minimal advertising. The amounts are not that significant, but if it's available you might as well have it and any money earned by Finance55 will help go towards paying for and developing this website.