Anyone is eligible to lend money through an online (peer-to-peer) platform, or lending company. If you want to trial the process you can begin by lending out a minimum of £10. There is no upper limit, or maximum on how much you can lend.
P2P lending is a great deal for people looking for a better return then they would with any other type of account (saving or investment). You are only allowed to lend through individual accounts, joint accounts will not be permitted.
If you are part of an organisation you may also lend money through a platform. You are only allowed to do this if your main business activity is not lending.
WHAT ARE THE RISKS WITH LENDING THROUGH A P2P PLATFORM?
One of the risks involved is that someone you lend to might default on their payments, therefore meaning you will not get the interest rate you were told at the beginning. The company you are working with will take measures to decrease and limit your risk by spreading your money across a wide pool of borrowers and risk profiles. They will also carry out through checks at the beginning of the process however it is crucial to know that your rate is not always fixed and could decrease.
As with any time of investing the higher returns are always made with the riskiest investments, it is the same in peer-to-peer lending. Choosing to lend to this risky demographic will result in a higher interest rate (if they do not default) but you also run the risk of having a lowered return.
GETTING YOUR MONEY OUT
To be sure of the largest return you must be willing to invest your money for as long as five years at a fixed rate. When you lend for longer you are showing a commitment to whoever you have lent to, and becuase of this they want to reward you and give you a higher return on your investment.
If you do need your funds sooner than when you initially signed up for, the platform will have a process in place to get your funds back to you within a 1-5 working days. When you do this your interest rate will normally decrease by around 1% for taking your money out prematurely.
Everyone you lend to will be repaying on a monthly basis. This means your return will be passed back to you each month as income. It is up to you whether you withdraw this money each month, or reinvest in to the system therefore creating compound interest.
PAYING TAX ON INCOME
The money you receive through this platform is classfied as income. Due to this you have to pay tax on your earning depending on what tax band you are in. As of April 2015, the first £1,000 made on P2P lending will no longer be taxed.
