Made £6.67
PEER-TO-PEER LENDING
Tina Norris, 62, a pensions specialist, lives in West Molesey, Surrey.
WHAT SHE DID Peer-to-peer (P2P) lending allows you to loan money to an individual or business for a fixed term (from one month to six years) through a lending provider. Providing the loan is repaid, you get your investment back, plus the interest paid on it. Tina started out by researching different providers online and checking the reviews. Her options were narrowed by the fact that some specify a minimum investment of more than £100; the minimum for Zopa (zopa.com) was £1,000 and for Folk2folk (folk2folk.com) it was £20,000.
Tina opted to invest via Kuflink (kuflink.com), a P2P platform that specialises in property, and could either invest in a particular property or in a portfolio, to spread her risk. ‘I invested in a particular property (a small car-repair garage with shop attached) as I wanted to benefit a local community,’ she says. Tina received a monthly statement and opted for the interest she earned to be automatically reinvested in the project.
I invested in P2P as I wanted to benefit a local community
HOW MUCH SHE MADE Tina made £6.67. WHAT SHE LEARNED Despite initial qualms, Tina enjoyed investing in a project to benefit a local community: ‘Using a P2P provider gave me the confidence that due diligence was done and that legal agreements were in place. I was taken through an investor assessment to check I understood that the estimated return on my investment wasn’t guaranteed and that the loan was not covered by the Financial Services Compensation Scheme (FSCS).’
WHAT THE EXPERT SAYS David Braithwaite of Citrus Financial recommends investing in a portfolio of several projects if you lend through a P2P provider: ‘I’d always advocate for diversification so as not to have “all your eggs in one basket”. Tina was drawn to an investment that resonated with her, and that’s fine, so long as you are happy with the higher risk that can be associated with just one option.’
Braithwaite warns that while the quoted returns on some P2P investments are attractively high, it may be because there’s more of a risk of an individual or company defaulting on the repayments. ‘Bear in mind: the higher the rate, the higher the risk. Don’t be lured by the chance of higher returns into taking more risk than you are happy with — it’s a higher rate for a reason,’ he says. ‘There is a risk of losing your funds entirely — if the P2P company fails then, unlike a regular bank, you aren’t covered by the FSCS that would protect your funds.’ He advises checking whether the P2P provider has provisions or contingency funds in place to protect your money.