Peer-to-peer lending can provide alternative saving options

How can peer-to-peer (P2P) lending provide a reliable alternative to banks for your saving plans?

 

Zopa has a strong, nine-year track record in the UK, with bad debts averaging just 0.25 per cent since 2010.

 

While some other peer-to-peer platforms give loans directly to an individual or business, Zopa spreads risk by lending your money in small chunks to lots of different borrowers over a two to five-year period.

 

And returns can be impressive. Lending out £200 a month would leave you with a £30,990 lump sum after just 10 years, comprised of £23,800 of original capital and £7,190 in interest payments, putting you well on your way to a housing deposit, retirement lump sum or whatever your financial goals are.

 

This assumes a 5.2 per cent annualised return before tax, after a 1 per cent fee, and that you re-invest monthly repayments. And with P2P set to be allowed in Isas in coming years, savers will soon be able to shelter their P2P investments in the tax wrapper.

 

Of course, there are risks. But since the launch of the Safeguard fund in May 2013 (which currently holds over £5m of capital to step in and give you back your money, including interest owed, if a borrower falls too far behind on their payments), every single loan and interest payment made through Zopa has come back to the lender.

 

The company has been heavily involved with the Peer-to-Peer Finance Association, helping to establish an industry standard on the transparent reporting of default rates. And over the last five years, Zopa has managed to consistently beat its own targets for keeping loan default rates low.