Peer to peer (P2P) lending, also known as crowdlending, involves applying to a platform for a loan which then offers it out to its members who collectively fund the loan. It would not be unusual for €200,000 to be funded by up to 800 bidders. Online Peer to peer finance providers like Flender and Linked Finance are increasingly popular with businesses as an alternative to traditional banks.
P2P is part of the wider Crowdfunding movement faciltated by the Internet
I joined Linked Finance in September 2019 – 2.5 years ago as the post is being published in March 2022. In that time I lodged €4,750 via my bank account, 21 loans were issued to their clients to a value of €10,940 – as the funds were repaid new loans were issued. To date, €835 interest has been earned and the account is now worth €5,466.60. I would recommend peer lending platforms as a good way to grow your savings over time if you don’t need immediate access to the funds.
Advantages of Peer Lending for the Lender
For me, I see two benefits in being part of the Linked Finance peer lending network:
#1. Financial return: to date I haven’t withdrawn any money from this account. I have paid tax on the interest each year – a statement of interest earned is provided by the system.
I have it set up with the ‘auto bid system‘ to bid on new loans that arise so that the loan value will continue to grow. At some point, I will turn off all bids and set up a direct debit to withdraw the money over a period of months.
2 loans have been fully paid back with 19 loans being repaid. Most loans are 24 or 36 months with the max being 60 months. The Linked Finance system says that the average interest rate is 9.19% for the 21 loans issued.
My calculation is that the current loans will yield €5,800 in repayments and interest when fully repaid providing a solid return on my original €4,750 deposit. The Linked Finance summary below shows only the principal outstanding in account value. These figures are after all fees levied by Linked Finance – their fees charged to me have been €120 to date which seems very reasonable.
At present, the final repayment is in 2026 but several of the loans will be fully repaid in 2022 and 2023. I can easily see this account remaining open for many years to come – great to have options!
~.2 Assistance to Small Business: no names will be mentioned in this post but as lenders, we get to know a certain amount about the businesses – they are all small enterprises from all across Ireland that collectively employ a lot of people. They are involved in all sectors. A condition set by Linked Finance is that they have to be in business for over a year to apply for a loan. I think it is great that anyone can help small businesses with these loans while benefitting their own financial health.
Please note that while the loans are secured by personal guarantee there is a chance of default as with any business lending. The advice is to be involved in lots of small loans to offset any risk. During Covid, Linked Finance offered payment breaks which I fully agreed with even though it meant a slight delay for lenders to include myself in getting repaid.
Easy to set up and manage Peer Lending
There is no work involved in Linked Finance for the lender once the account is set up. All the due diligence is done by Linked Finance who grade the loans according to the applications – higher risk loans pay higher loan rates. The online platform is very user friendly.
Hope you found this post useful. It is my own personal opinion and is not endorsed or sponsored by Linked Finance – I am simply one of their many lenders /Customers. Comments and social shares are welcome. This is my personal opinion and experience and does not constitute professional advice – it is always advisable to speak to a financial advisor before making an investment decision.
For more on P2P lending see this post by DCU Business School.
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