With the high street banks offering record-low interest rates on savings accounts, many savers are looking for better returns from their money. One that’s receiving gathering momentum, especially as consumers continue to lose confidence in traditional banks, is ‘peer-to-peer’ lending, a term that covers the array of companies who have sprung up allowing those with capital to lend it to those looking for it.
There are advantages for both parties. The savers get a higher rate of return on their investment than they would in an ISA or other savings account (though there is a risk of borrowers defaulting on the loan). The borrowers also get a lower interest rate, which makes borrowing more affordable for them, and can get loans which may have been denied if they’d gone through the traditional channels.
You might not have heard of these services before, but the practise is becoming more widespread amongst both individuals and small business. The founder of one company that specialises in setting up loans from individuals to small businesses has this to say: “A lot of people are fed up with the traditional banks. In the past week, since details emerged that Libor was being fixed by the big banks, we have seen an increase in interest. There is a strong appetite out there to lend to British businesses while at the same time earning an attractive rate of interest.”
He hits on another reason this is attractive to many savers. Whilst people have their money in banks, there is a perception that it is making nobody money but the banks themselves. Even with quantitative easing in place, many small and medium size enterprises are finding it hard to get loans. By getting their money out to those who will use it whilst simultaneously receiving a better rate of return, many savers see little downside in ‘Peer-to-Peer’ lending.