Peer to peer investments are an alternative form of investment that have grown over the last few years and are now becoming more mainstream. Essentially they work as a 'crowd sourced' loan for people who want to borrow money. This is usually organised through a 'Platform' which matches people who want to borrow to those that want to invest. Some of these 'platforms' are now so well structured it feels more like depositing money in a bank. However, it isn't the same as depositing money in a bank (which usually has FCA protection up to £85,000), as with peer to peer lending there is no protection - it is NOT saving, it's investing, and there is little protection if things go wrong. Having said that, many people feel that peer to peer investing is less risky than investing in shares, and it can pay more in interest than traditional savings. As always, a key way to mitigate any risk is to diversify. Therefore, peer to peer shouldn't really be seen as an alternative to other investment strategies, but as a compliment to them. So a fully diversified investment portfolio should include shares, bonds and property as well as peer to peer investments. You should also keep some money aside as cash in an easy access account that can be accessed in difficult times (think 2020 and pandemic!). There are a number of peer to peer platforms that you can look at for investing, which allow you to lend to different types of borrowers and diversify across both platform and borrower types. Below I have ranked the four peer to peer platforms where I have the most experience and have highlighted some of the key points about each. Currently only Kuflink is open to new investments. However, this is my number one choice and would be a great place to start if you want to explore peer to peer. 1. KuflinkKuflink are a peer to peer company that focuses solely on lending to property developers. This in itself makes them slightly different to many other, more generalist P2P companies, but what I also like is that they also invest up to 5% of their own money into each development loan alongside the crowd sourced money. For me, this gives me greater confidence that they are truly looking at lending responsibly. In addition, the money lent is secured against the property being developed and usually with a realistic LTV (loan to value - i.e. the loan given is less than could be raised if the developer collapsed and the property had to be sold to recover the loan amount). Whilst the Kuflink platform was built in 2017, the company behind Kuflink have been providing bridging loans since 2011 and they have won numerous awards within the industry. Once signed up to Kuflink, you can choose to let them select the investments for you (auto-invest), or you can select yourself which properties to invest in (select-invest). Within the auto-invest option you can also invest within an ISA wrapper and there is also a SIPP (self invested personal pension) option. I personally invest using the select-invest option as that enables me to choose which property developments I invest in and how much I want to invest in each. I feel this helps me keep control of ensuring a good diversification across properties and it also gives me the option to take my interest monthly which fits in nicely with my passive income strategy. During 2020, Kuflink have continued to lend to property developers and continued to pay interest to developers. In this respect, Kuflink seem to have weathered the pandemic better than most and so my faith in them as a business has remained high. Currently I am earning around 6.8% interest each month, but this can be boosted to just over 7% if you opt for annual payments rather than monthly. This level of interest, along with loans secured against property and the ability to diversify across many property developments across the UK has made me position Kuflink as my number 1 peer to peer platform for 2020. If you decide to invest in Kuflink, by using my referral link you could receive up to £4,000 cash-back: -> go to Kuflink 2. Lending WorksLending Works is a very simple and easy to use peer to peer offering which lends to individuals with unsecured loans of up to 5 years. Diversification is built in as your investment is split across a number of different loans. In addition, Lending Works has a 'Lending Works Shield' which provides 'first-loss cover' across all of it's loans. This 'Shield' is funded by the borrowers as part of the interest they pay on their loans. Then if anyone does default on their payments, this shield can be used to cover the due payments to lenders. Lending Works advertise the fact that no lender has to date lost any capital. Apart from the simplicity and easy to use website, another great feature of Lending Works is that you can set your capital to be re-lent and any interest to be paid out. This means that you can keep your money invested and earn a regular monthly passive income through Lending Works. Lending Works advertise interest rates of up to 5.4% from lent money which can be held within either a general account or within an ISA wrapper. However, during 2020, Lending Works have found the pandemic a challenge. They stopped lending money out earlier this year which has meant that repaid capital has accrued within accounts. This money has been available for withdrawal and no money has been lost (so far). It does mean though, that overall interest for the year has fallen below advertised rates and is currently closer to 3% rather than the pre-pandemic 5.4%. They plan to start re-lending to borrowers in January 2021. Lending Works have recently had an investment company invest heavily in them and their platform. This can only be good news for Lending Works as a company and I believe that as we move out of the pandemic, and we start to get back to normal, they will remain a good option for passive income generation. If you decide to invest in Lending Works (once the freeze on new investments is lifted in January), by using my referral link you could receive £50 cash-back: -> go to Lending Works 3. Funding CircleFunding Circle lends to small businesses which is different to the other P2P lenders listed here. Money invested in Funding Circle therefore increases your diversification as you lend to a different type of borrower. Also, to help with diversification, Funding Circle split your investment across a number of different businesses. For example, if you invest £2,000 they will split that across 20 small businesses so that you end up lending no more than £10 to any individual business. The interest rate that they advertise you can expect includes any expected defaults. So unlike Lending Works, there is no 'shield'. Losses are expected and built in to their model. Funding Circle advertise an interest rate range of 4.5% to 6.5%. My investment is currently returning around 5.9% which I believe is reasonable especially considering the difficult year we have just had. Funding Circle is another P2P lender that is currently not lending investors money out to borrowers. This is because at the moment they are involved with the government CBILS (coronavirus business interruption loan scheme) lending programme and this isn't something that can be invested in through individual (retail) investors. This means that any repaid capital coming in to your account isn't re-lent and so this can be withdrawn on a regular basis if you want. If you want to invest via Funding Circle once they start accepting new retail/personal investments then you can find them here -> go to Funding Circle 4. ZopaZopa advertises itself as the 'World's First P2P Platform' and highlight that they have been in business now for 15 years. If nothing else, this should give you a certain amount of confidence about how they run this type of business. Not only have they weathered the 2020 pandemic, they also weathered the 2008/2009 financial crisis. Zopa lend to individuals in the same way as Lending Works do. They don't however have a 'shield' to protect investors but build in defaults to the advertised rates that you can earn. In reality, this means that the rates you can earn through Zopa are lower than many other P2P lenders and currently advertised as between 2% and 5.3%.
Recently, Zopa have also launched as a bank with one of their first offerings a credit card. How their bank offering will affect their P2P business isn't really yet known, but currently they are saying that they will be run as two separate businesses side by side. Zopa have continued to lend during 2020, but have been more careful to whom they lend to and thus waiting times for any investment to be lent out are now running to over a month. This is quite a long time for your money to not be earning anything, sitting in a queue, waiting to be lent out. As we move into 2021 and the pandemic becomes history, then this situation is likely to change. If you want to invest with a company that has been around the longest and weathered two financial crises, then Zopa may be a good starting point for you. If you want to invest with Zopa, use the following link -> go to Zopa
0 Comments
|