Complete Finance Blog

With public trust in banks still dwindling, a new personal way of earning interest by lending money directly to other people is flourishing. But is ‘social lending’ really a practical alternative to traditional banking?

A new set of peer-to-peer (P2P) or social lending websites have risen from the ashes of the recession and capitalised on the contempt that many of us now have for our banks. Essentially P2P lending sites cut out the financial middle-man and allow you to lend directly to other individuals or businesses. You choose how much you want to lend, who you want to lend to and how much interest they should pay.

But there are still important differences between the key players in this new social lending market – so let’s take a closer look at each site…

Zopa

Launched: March 2005

Amount lent to date: £125m

Lender fees: 1% of the amount lent

Average return: 8.6% over the last year (7.6% after fees but before bad debt)

Zopa is the big fish in the P2P pond and now makes up 2% of the unsecured personal loan market in the UK.

The site allows you choose the type of borrower you want to lend to, the level of risk you are prepared to take on and the interest rate you wish to receive. Your money is then lent out to several different credit checked borrowers to reduce the impact of any defaults. When a repayment is made by the borrower each month you receive a slice of your capital investment back, along with some interest.

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