P2P Loans A 'Must-Have'? Only If Investors Understand Risk...


Peer-to-peer (P2P) loans have had a tough time in the court of public opinion recently, following the high-profile failure of P2P platform, Lendy. While that's a disaster for the investors in those loans, there's an attractive argument that it's a good thing for the industry generally. The thinking is that the strong will survive. The strong platforms are those with a conservative risk-analysis model, who've gone for quality rather than lending willy-nilly for growth.Our friends at Crowdfundinsider run an opinion piece focused on the Asian market as to why P2P debt is a "must-have" for any investor's portfolio. Below, we run an extract on the benefits of P2P returns – but investors should remember: capital is at risk; don't be seduced by returns – look at the track record of the platform, and evaluate risk and factors such as the ease with which you can get your money back.
  • Our own track record on risk and bad debt is set out below.
The returns from SME debt are absolute, as dictated by the terms of the loan. For investors, this consistency makes it easier to plan financially, such as requiring a certain amount for a down payment on a house.When investing in stocks and unit trust funds, the returns are usually variable and based on a benchmark index, like the performance of S&P 500. SME debt is independent of these factors, and might guarantee returns from interest rates of close to 7%.

Historical Performance And IFISA Process Guide

  • Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £17 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders' capital is at risk. Read warnings on site before committing capital.
  • Money&Co. has been lending for over 5 years and has only had one bad debt so far, representing a bad debt rate of 0.04 per cent per annum.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.So here's our guide to the process:
  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you've put cash in your account it will sit there - and it won't earn interest until you've bought a piece of a loan. It's this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans - all loans on the Money&Co. site can be held in an IFISA - and your money will start earning tax-free interest.
The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We're assuming a 7 per cent return, net of charges and free of tax here.Once you have made your initial commitment, you might then consider diversifying - buying a spread of loans. To do this, you can go into the "loans for sale" market. All loans bought in this market also qualify for IFISA tax benefits.

Risk: Security, Access, Yield

Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here's one of several earlier articles on security, access and yield.

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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.