P2P Lending. FCA regulated. Unbolted.

Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2mins to learn more.

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

You could lose the money you invest

Many peer-to-peer (P2P) loans are made to borrowers who can’t borrow money from traditional lenders such as banks. These borrowers have a higher risk of not paying you back.
Advertised rates of return aren’t guaranteed. If a borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money.
These investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.

You are unlikely to get your money back quickly

Some P2P loans last for several years. You should be prepared to wait for your money to be returned even if the borrower repays on time.
Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’, but there is no guarantee you will be able to find someone willing to buy.
Even if your agreement is advertised as affording early access to your money, you will only get your money early if someone else wants to buy your loan(s). If no one wants to buy, it could take longer to get your money back.

Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

The P2P platform could fail

If the platform fails, it may be impossible for you to collect money on your loan. It could take years to get your money back, or you may not get it back at all. Even if the platform has plans in place to prevent this, they may not work in a disorderly failure.

You are unlikely to be protected if something goes wrong

The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans. You may be able to claim if you received regulated advice to invest in P2P, and the adviser has since failed. Try the FSCS investment protection checker here.
Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

For further information about peer-to-peer lending (loan-based crowdfunding), visit the FCA’s website here.

Peer-to-Peer Lending

Peer-to-peer lending matches up savers who are willing to lend with borrowers - either individuals or small businesses. Interest rates can be more attractive than those offered by banks, but the high interest rates come with added risk, most notably the fact you might struggle to get your money back if the borrowers you've lent your money to fail to repay. Peer-to-peer lending platforms aren't covered by the Financial Services Compensation Scheme (FSCS) which guarantees your savings with banks and building societies up to the value of £85,000.

Peer-to-peer lending platforms cut out the middleman and the overheads of a traditional bank and often offer more favourable rates than in a savings account or other investments. The platforms make their money by bringing borrowers and lenders together.
By being connected directly to someone who wants to borrow, the most immediate risk to the peer-to-peer investor's capital is if a borrower fails to repay the loan. If a lender defaults with a bank, the bank absorbs the loss. The risk of default is managed differently by each peer-to-peer site. Some offer compensation funds whereas others takes a different approach and claim to offer higher returns to compensate for the risk of default.
Returns on peer-to-peer lending are currently taxable as income. Therefore, the peer-to-peer investor will need to inform HMRC how much interest they earn at the end of each year.
However, a new type of Isa called the 'Innovative Finance Isa' will be introduced from 6 April 2016 for peer-to-peer lending. The peer-to-peer investor may be able to set up an Isa with an individual platform so that any interest paid by borrowers is tax-free.
The borrower on most peer-to-peer lending platforms will not only be credit-checked by a credit reference agency, but they will also have to pass peer-to-peer platform credit-worthiness tests in order to qualify for a loan

Unbolted takes a completely different approach to peer-to-peer lending