Is Peer-To-Peer Lending The Future For Your Savings?

Article Category: Finance  |   

Peer-to-peer lending (also known as person-to-person lending) has taken the financial world by storm. But what is it and can you use these schemes effectively to make some money?

What Is Peer-to-Peer Lending

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At its most basic, it\'s kind of like a financial group hug. Traditionally, when you wanted a loan, you\'d either browse the web looking for the best deals or simply throw yourself on the mercy of your bank manager. The advent of the internet made life easier. Price comparison websites did a really good job of aggregating all the best deals for your convenience. But this didn\'t mean you were getting the best for your money.

A bank is bank and, quite simply, making as much money as humanly possible is the name of the game. So, even though the aggregators delivered more options, you were still tied to the same rules and restrictions imposed by the banking industry. But some plucky Brits decided enough was enough and peer to peer loans were born.

The concept is simple: in most cases, a website allows borrowers to pitch a loan request. A credit check is used as a method of vetting the requestor\'s ability to repay the loan. Once satisfied, potential lenders make an offer.

What Are The Advantages Of A Peer-to-Peer Loan?

Let\'s be really blunt: in the current financial malaise that\'s gripping the world economy, it\'s all about the money. The less we pay for any service the more disposable income we have to throw at the more enjoyable aspects of life.

So, with that in mind, the part you\'re really interested in is the interest rates; typically, they\'re low – especially for borrowers who may have had money problems in the past.

Depending on your circumstances, the APR on a bank loan can come in at a heart stopping 14% (or more)! "Isn\'t that normal?", you say. Yes, it is, if you\'re happy to let your bank dictate the game. If, on the other hand, you\'d like to pay a little less, say in the region of 6% - 7% APR, you might want to consider performing a massive body swerve.

You should bear in mind you might not get rates as low as this if you have a poor credit history. But the chances are that the rates will be more competitive than those offered by the banks.

Another advantage of this type of loan system is that it is not governed by a computer. Many of the money lenders are altruistic: helping out fellow humans means more to them than making a return on their investment (unlike many banks).

One more thing – you can actually make money from P2P lending. But we\'ll go into that shortly.

The Big List Of U.S Peer-to-Peer Websites

Ok, first off, the list of peer-to-peer lenders in the United States isn\'t very big. But it will get bigger. The fees an interest rates will get more competitive (you will have heard it first here on The Calculator Site).

Here\'s our list of the best American P2P sites:

Prosper was founded way back in 2006 and is one of the first U.S companies to enter the P2P loans market.

Like any other company offering this type of loan, most of the lenders are everyday people like you and me. But Prosper also has backing from a number of big names from the finance and technology sectors (feel free to check out the website for more information). has funded over $426,000,000 worth of loans since the company was founded (yes – nearly half a billion dollars loaned by trusting individuals and business to people like you and me).

Prosper supplies loans up to a value of $25,000.

Lending Club

The Lending club was founded by Renaud Laplanche in 2007 and has collected a number of awards and accolades for innovation in the financial industry.

Although the Lending Club has not been around as long as Prosper, it helped provide a gargantuan $1,049,975,425 worth of loans. Of that sum, over $90,000,000 has been returned to investors.

The Lending Club supplies loans up to a maximum of $35,000.


CircleUp is a more recent entry into the P2P market space and specialises in providing money to fledging and growing companies.

Now, you may be wondering how this helps you, right? We\'ll come to that in a minute. Quite simply, CircleUp allows investors to inject cash into companies that, for whatever reason, may have been overlooked by the big venture capital suppliers.

UK Peer-to-Peer Websites

For those of you in the UK who are feeling a little left out, fear not. You too can get involved in peer to peer lending courtesy of these UK online companies:


Zopa was founded in 2005 and is the leading peer-to-peer lender in the UK, acting as a marketplace that puts together individuals with investment money and individuals who want a personal loan. To-date, Zopa has helped arrange peer-to-peer loans of over £250,000,000.


Folk2Folk is a peer-to-peer lending company based in South West England. It is a web platform but also has high street premises. Unlike other peer-to-peer platforms, Folk2Folk is focussed on regional lending and bringing back a local touch to business lending. It is also one of the first peer-to-peer lenders to exclusively provide secured loans with borrowers putting forward properties (other than a borrower’s home) as security.

How Does All Of This Help You?

Let\'s forget about what you can get out of these companies and start thinking about how you can help. But you\'re not just helping other borrowers – you\'ll be helping yourself as well.

Peer to peer lending companies need investors. Most of the current investors are newbies to the game. People like you and I. In fact, this relatively near branch of the finance industry started off as a place enthusiastic amateurs could go to in order to stop rewarding the high street banks who are seen as uncaring and out of touch.

Furthermore, everyday folks know that life will only get harder. But if getting by on a day-to-day basis is hard enough when you have a job then what will it be like when we retire? Unfortunately, nobody can give us a definitive answer so the best we can do is think \'worst case\' and force our saving and retirement funds into top gear.

Peer to peer companies need lenders. They need YOU. In return, they will deliver a handsome return on your investment (in some cases, the yield can be as high as 24%).

Be warned! Like any investment, there is no guarantee that your money is 100% safe. There are failures, but don\'t let this put you off – the returns delivered by the Lending Club show that, if you do your research, there is serious money to earned as an investor.

Is Peer-To-Peer Lending Really The Future Of Finance?

No, not entirely. At the end of the day, many investors and borrowers will still go to their bank. The brand value has currency in the consumers eyes. It will take many years to prove that some banks really have taken their customers for a ride.

But for anyone out there that wants a change and is prepared to stake a claim on their own future then now is the time to invest in the P2P lending market.

Written by James Redden

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Last update: 19 November 2012

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