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P2P Lending Returns to Average 5%

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Press release on 4th December, 2014. For immediate use.

  • Current forecast returns for individuals lending their money to consumer, business and property borrowers is 5.09%.

  • Most savings accounts pay 0.2% interest or less with the best deals paying 3.25%1

  • The 4thWay® P2P Forecast Returns Index benchmarks the rates from around 85% of the market, which has approximately £1 billion in loans outstanding and they are completing more than £100 million in new loans per month.

  • All the individual lenders who have lent for at least half a year and spread their risks between at least 100 borrowers while lending no more than 1% in each business in the benchmarked companies have suffered zero capital losses.

With the Chancellor announcing so much more positive news on P2P lending in his Autumn Statement yesterday, we thought it was a good time to announce the first P2P lending benchmark ever.

The 4thWay® P2P Forecast Returns Index shows that expected returns for lenders putting money in today, 4th December, 2014, are 5.09% after fees and expected bad debts, but before income tax.

In contrast, savings accounts typically pay 0.2% or less. The top savings account pays 3.25% before income tax. The top cash ISA pays just 2.5%.1 In addition, to get these top savings and ISA deals, you have to put your money away for five or seven years, so you don’t even get the benefit of shorter deals.

P2P lending is usually from one month to five years, although you do have to re-lend any repayments you receive to get the headline rate. You can usually expect to lose a few fractions of a percentage point a year while you wait for repayments to be re-lent.

With some P2P lending websites, there’s an additional possibility of making capital gains or losses on the secondary market, which is where you can sell your loan parts to other lenders to exit early.

So far, P2P lending companies have been conservatively forecasting bad debts on the high side, so that individual lenders have usually been positively surprised with better than forecast results.

Lending is a form of investment, not saving, but some of these companies are positioning themselves at just a fraction more risky than savings accounts in terms of your likelihood of losing money, provided you spread across lots of loans.

Higher interest rates are also ensuring that your overall risk of losing spending power – i.e. losing to inflation – is considerably lower than with savings accounts.

P2P lending companies can offer you higher rates by being more efficient than the banks and by passing you most of the interest paid by borrowers. With savings accounts, banks lend your money out and pay you a fraction of the rewards.

Neil Faulkner, founder of 4thWay®, the P2P lending comparison and risk-ratings website, said:

Some P2P lending companies are positioning themselves as nearly as safe as savings accounts, but with much higher interest rates. The reality is there is a wide spread of risks.

The calculated 4thWay® Risk Ratings currently list lending opportunities with a very low risk score of 10 and a medium-high score of 50. However, the theoretical highest score is 100 and as we finish risk scoring all the, shall we say, more exciting opportunities, we’ll find a very large spread of risks and potential rewards.

Similarly, there is a wide range of interest rates available. While the average is just over 5%, we haven’t met anyone who is average yet. Some people are lending for just monthly periods and getting 2.1% per year on a monthly loan – about 0.15% per month. Others are going up the risk scale and getting 8% after fees and expected bad debts.”

You can contact the founder, Neil Faulkner, for additional commentary or opinion. Neil is promising you a super-rapid response by email today on neil.faulkner@4thway.co.uk and he’s also available direct on 020 8144 3364.

By Jane Rey.

 

About P2P lending

P2P lending is doubling in size every year. It is swiftly becoming the fourth way to save and invest behind savings accounts, buying your own property and the stock market.

About 4thWay

4thWay® provides P2P lending comparison, risk ratings and research.

Sources

All data from 4thWay® except:

1Savings rates from Moneysupermarket.

Today’s average interest rates

What is the “4thWay”?

There's the savings way, the property way, the stock-market way, and now there's the peer-to-peer lending way. The 4thWay® to save and invest.
Learn more.

What does 4thWay do?

We help people save and make more money, more safely when they cut out the banks and lend directly to other people and to businesses.

Why use 4thWay?

4thWay® is shaped by investors, bank risk modellers and a senior debt specialist, and we're governed by our users to ensure our comparison services and research are trustworthy and complete.

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×

Why are Orchard’s interest rates different?

Orchard’s lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Orchard’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Got it

×

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×
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