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Should I Invest in P2P?

Posted 3 months ago

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The Covid-19 crisis has presented a challenge for the sector, but there are still many reasons to invest in peer-to-peer lending. P2P is fighting its way through its first economic downturn and there are opportunities for savvy investors looking to diversify their portfolios.

As we have seen throughout the pandemic, each platform has its own measures to try to protect investors. However, it is important to note that while P2P can offer a number of advantages to investors, your capital is always at risk when investing in P2P sites. As such, we always recommend you seek professional advice before acting. 

Below, we list five reasons why you should consider investing in P2P

Source: P2P Finance News

Reason

Details

Diversification

  • With the base rate at a record low of 0.1 per cent, returns from savings accounts and cash ISAs are not even beating inflation.
  • At the end of June, the firm’s analysis showed the average easy-access savings account is now paying just 0.24 per cent per annum.
  • Meanwhile, the stock market is experiencing high levels of volatility, which may be good for traders but does not fill everyday investors with confidence.
  • In contrast, P2P investing offers regular, fixed returns and diversification across other types of assets.

Easy and transparent

  • P2P lenders are fintechs that pride themselves on their excellent technology so it’s easy to sign up and invest through their websites, and for some, mobile apps.
  • Stricter rules for the sector that came into effect last December mean that platforms need to be transparent with their customers about their loan book data and wind-down plans, so new customers are able to access this information on their websites prior to investing.

Tax benefits

  • P2P can be invested via tax wrappers, such the popular Innovative Finance ISA (IFISA) or a self-invested personal pension (SIPP) which is seeing increasing take-up among the P2P community.
  • IFISAs allow investors to earn up to £20,000 per year, tax-free, via P2P loans.
  • For SIPPs, investors can contribute the entirety of their annual earnings before tax up to a limit of £40,000 for the current tax year.

Liquidity

  • While all investments have suffered from liquidity issues during the pandemic, there are still P2P platforms with open secondary markets where investors can buy and sell loans, such as Ablrate and Rebuildingsociety. However there is no guarantee.

Support business

  • Although retail money cannot be used to fund government emergency loan schemes, everyday investors can still support consumers, businesses and small housebuilders during the crisis by investing in P2P loans.
  • Lenders can also support sustainable energy and the environment through ethical crowd bonds platform Abundance Investment and its community municipal investment with West Berkshire council, which helps the local authority to finance green infrastructure projects.
  • Platforms have also been helping key workers during this time, giving investors an opportunity to help as well

Author: Sacha Bright & Oliver Murphy

Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. Nextfin is not liable for any damages arising from the use of or inability to use this site or any material contained in it, or from any action taken as a result of using the site. 

Tagged: sme entrepreneur p2p alternative finance news coronavirus



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