Although there is
a risk element involved from which lenders, unlike banks and
financial institutions, receive no protection from the Financial
Services Compensation Scheme (FSCS), the risk is minimised because
the money provided by lenders is spread across borrowers rather
than being focused upon any one particular borrower. The default
rate involved in peer to peer lending is estimated to be in
the region of 0.5 per cent, which is covered many times over
by the interest paid by borrowers who honour their repayments.
Many lenders are
investing considerable sums into peer to peer lending with a
view to making a serious income from this massively expanding
phenomenon. However the beauty of it is that at the opposite
end of the scale investors with as little as £50 to lend
are able to participate.
Thus, thanks to web
technology, everyday people are able to help out those in need
whilst being able to make a reasonable above-inflation profit
for themselves and at the same time remaining relatively safe
from the prospect of large-scale default. For their part borrowers
can get good low-interest terms on a loan without having to
deal with an increasingly unpopular and untrusted banking industry.
It is a best of all
worlds development which seriously promises to undermine the
lending industry as we know it, with businesses as well as private
individuals climbing aboard and getting involved.