The peer-to-peer lending industry has been going from strength to strength since its start in 2005. Last year, cumulative lending volumes throughout the industry pushed past the £7 billion mark. The rapid growth of the industry brings in a rapid increase of Lenders looking for higher returns on their cash in this low interest rate environment.
There is still some misperception of what peer-to-peer lending is as at first glance, it bears some resemblance to other financial products.
NOT a savings product
Despite the returns of a peer-to-peer platform being quoted as XX% per annum, it is NOT a savings account. While a return of 8% p.a. is much more attractive than a savings account of 1% p.a., peer-to-peer platforms do not benefit from the same Financial Services Compensation Scheme (FSCS) that banking institution do.
This is why at Relendex we have risk warnings to remind lenders that funds lent through the platform are loans and not deposits. That means your capital is at risk. While all our loans are secured against the property, there will always exist the risk of capital loss which is why a diversified portfolio can help mitigate risks.
NOT equity crowdfunding
While peer-to-peer lending is in the similar alternative finance space as equity crowdfunding, in that both rely on groups of people coming together to fund a project or business; what lenders/investors receive in return are different. Especially in regards to the property space, peer-to-peer property lending platforms (like ourselves) have a different value proposition when compare to property equity crowdfunding sites.
In peer-to-peer lending, there is a specified loan and interest amount that the borrower must repay at the end of the loan term. Equity crowdfunding on the other hand, investors are more akin to shareholders who will be rewarded if the company is successful in the future. With regards to property equity crowdfunding, investors would need to see capital growth to see a positive return on their investment.
So despite that, what is peer-to-peer lending?
A way to receive fixed returns
With peer-to-peer lending, lenders’ will typically receive a fixed interest rate on the loans that they have chosen to participate in. Here at Relendex we pay out interest on Loan Parts quarterly, giving lenders the opportunity to reinvest it.
Another way to diversify your portfolio
As any investor should know not to put all your eggs into the same basket. By dividing loans into multiple parts, peer-to-peer lending allows smaller investors to receive exposure to other asset classes. For example here at Relendex we specialise in commercial property loans that give investors exposure to the property market without a need for large starting capital.
Liquidity where secondary market is available
Although peer-to-peer property lending should be considered a long term investment, there is always the option of selling off Loan Parts in a secondary market if available. There is no guarantee that you can withdraw your funds as it is dependent on another lender buying your part. Our Resale Marketplace where you can trade at par (and with no fees) has seen over £2million worth of trades to date.
So if you are interested in peer-to-peer lending with Relendex, register here!
