P2P Lending Explained Ahead of Arrival Of Big New Loan Tranche
We have a big new tranche of property-backed loans that we're keeping under wraps before launch on site. Ahead of their arrival - later this month - we offer a reminder of some of the key factors to consider in appraising a loan before investing. Bear in mind that while there is no profit without risk, our lenders have achieved a return of over 8 per cent (7 per cent after our one per cent charge) with over £12 million loans facilitated.
Some Factors To Consider Before Investing
Examine the borrowers' proposals in detail. We use our best endeavours to ensure that every representation of the borrower is true – about the market, the prospects, the company's track record, the reason for the loan, the veracity of the audited accounts, etc. But we cannot and do not warrant that this is so.
Don't be seduced by yield. The returns can be attractive, but a high yield can mean high risk.
Spreading your loan offers is a good idea. All Money&Co.'s borrowing companies have been through a careful credit-analysis process, but there is always a risk that a borrower might default on debt. We protect lenders' interests by taking a charge on the assets of the borrower, but please be aware that there is no profit without risk. Spreading money across several borrowers is seen by many commentators as a good way of spreading risk.
Access to your money when you become a P2P lender is typically not as instant as withdrawing cash from an ATM or a bank. Lenders can sell their loans to other lenders in the loan market. Sometimes it may take a while to liquidate a loan. Read the risk warnings on site. As we've stated above, there can be no profit without risk. If you're at all unsure about any of this, consult a lawyer, accountant or professional investment adviser.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (ISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income.
A Process Guide To Innovative Finance ISA Investment
Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here's our guide to the process:
Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
Step 3: Buy loans in the loan market. Once you've put cash in your account it will sit there - and it won't earn interest until you've bought a piece of a loan. It's this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans - all loans on the Money&Co. site can be held in an IFISA - and your money will start earning tax-free interest.
The ISA allowance for 2018/19 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We're assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying - buying a spread of loans. To do this, you can go into the "loans for sale" market. All loans bought in this market also qualify for IFISA tax benefits.