After a meteoric rise in the UK lending market, peer-to-peer loans are set to top £1 billion this year. The Peer-to-Peer Finance Association (P2PFA), the industry membership body, recently revealed that peer-to-peer lending platforms loaned £500 million during the first six months of 2014. The statistics also reveal that consumers are turning to these alternative lenders in increasing numbers as bank lending continues to remain stagnant.
It seems that one of the few positive factors to arise from the recent financial crisis has been the emergence of alternative lenders, and peer-to-peer lending is leading the way in that respect.
The success of this relatively new way to lend and borrow money is due to a number of factors; not least the continuing reticence of banks to approve loan applications.
Applicants for personal loans from mainstream lenders are having to navigate reams of red tape in order to get the finance they need, and the process is taking longer than ever before. The application process adopted by most peer-to-peer platforms is streamlined and relatively straightforward, and in some cases funds can be in the applicant's bank account within just a few days.
The leading peer-to-peer platforms in the UK utilise a number of eligibility checks before they approve a loan application, but they manage to do so without prolonging the approval process. An entire application can be processed online, giving consumers the quick decision and smooth transfer of funds they need.
Liberum, a major brokerage firm in the UK, recently revealed that the peer-to-peer market has the potential to grow to £45 billion per year by the end of this decade - fuelled by recently announced tax incentives from the government. As more and more consumers find themselves unable to acquire finance from traditional sources, this relatively new breed of lender is picking up the slack.
Moreover, the entire industry has been given a surprising shot in the arm by the FCA. Rather than turning lenders and borrowers away, the recent regulations announced by the Financial Conduct Authority have given peer-to-peer loans an added credibility, and that seems to have encouraged more individuals to think of them as serious alternatives to mainstream finance.
Borrowers are benefitting from a growing pool of cash becoming available via multiple peer-to-peer lending platforms and receiving far lower interest rates than those offered by most traditional lenders, whilst lenders or savers are able to take advantage of rates of return as high as six percent.
One of the main criticisms that still persists, however, is the fact that peer-to-peer finance is not covered by the Financial Services Compensation Scheme (FSCS). In order to alleviate consumer fears, FCA regulations requiring that client monies are ring-fenced and platforms have back up arrangements in case they no longer exist have been introduced. Major lending platforms have also introduced a selection of provision funds and even insurance schemes to give people the reassurance they need given the current economic climate.
There are very clear financial advantages to choosing peer-to-peer platforms over traditional providers of personal loans. In most cases, loan fees associated with peer-to-peer loans are lower, and borrowers aren't penalised in any way if they want to make overpayments or repay their loan early.
Whilst the major financial institutions in the UK continue to keep a tight rein on their balance sheets, it seems the rise in popularity of peer to peer platforms shows no signs of letting up.
About the Author
Nick Harding is Founder and Chief Executive Officer at Lending Works. Lending works is a peer-to-peer lender that matches thoroughly underwritten personal loan borrowers to shrewd lenders so both receive a much better deal. Lending Works is the first peer-to-peer lending company to have insurance that protects lenders against borrower defaults and fraud. For more information, please visit – www.lendingworks.co.uk or follow Nick Harding on Google+"