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.
The lockdown has meant that there is potentially a huge group of consumers who have saved money and may be looking to invest it elsewhere.
Here’s five reasons to invest in P2P.
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.
Cash savers have just experienced the worst six months in more than a decade according to Moneyfacts.
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.
It’s quick, 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 loanbook data and wind-down plans, so new customers are able to access this information on their websites prior to investing.
P2P can be invested in 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.
While all investments have suffered from liquidity issues during the pandemic, there are still P2P platforms with open secondary markets where investors can easily buy and sell loans, such as Ablrate and Rebuildingsociety.
Supporting people, businesses and the environment
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.
Buy2LetCars helps key and essential workers access car leases and in May JustUs opened to loan applications from key workers.