Peer-to-peer – P2P – lending is an alternative form of investment where individuals lend money directly to other people or businesses, without going through traditional banks. This lending operates on a “many-to-many” model, facilitated by internet platforms known as lending platforms, which connect lenders with borrowers.
How Safe is P2P?
At first sight, P2P might appear vulnerable to abuse. However, the platforms through which loans can be accessed are regulated and authorised by the Financial Conduct Authority. This means they may have been advised by FCA compliance consultants, such as https://www.adempi.co.uk, to ensure they operate with regulatory oversight and protection for both parties.
Advantages of P2P
There are unique benefits for both lenders and borrowers. Lenders have the potential to earn higher interest rates than those offered by traditional financial institutions. For borrowers, P2P lending provides an alternative source of finance, which may be more accessible than conventional lending.
How it works
Lenders deposit money on a P2P platform, which breaks this into multiple small loans to various borrowers. Borrowers typically receive funds from many lenders to cover the total loan amount. The platform handles repayment collection and passes interest and capital back to the lenders.
Interest earned is taxable like any other interest, with tax deducted or reported directly to HMRC. If a loan becomes unrecoverable, lenders liable for UK income tax can claim tax relief by offsetting losses against interest from other P2P loans, provided specific conditions are met.
P2P lending offers a regulated, tech-enabled alternative for investors seeking attractive returns and for borrowers looking beyond traditional finance channels.
