Current UK Investing & Lending Market
Peer to Peer Lending Illustration: At the time of writing this article, the sun is shining and the Bank of England’s base rate is 0.25%. This means that many a mortgage owner is enjoying low interest and the chance to overpay or negate some of the horrid interest usually levied again their debts. However, for the UK saver and investor, the low 0.25% means the opposite.
UK High street banks aren’t always passing on the interest savings either, with some banks pitching up to 20% when it comes to lending on personal loans or smaller non high-value lending. To get the best rates with a lot of the high street banks at the moment you’ll need to be borrowing sums larger than £5000 to access single figure interest rates. 2.9% – 3.6% being the current best from the top lenders. Lloyds offer the worst rate going at the time of typing this article.
So it’s clear that for sub £5000 loans borrowers will need to look outside the high street, that’s where Peer to Peer lending comes in as a viable alternative.
What is Peer to Peer lending?
Sometimes referred to as P2P lending, it’s essentially matching up two parties investing and lending needs for mutual benefit. This is usually done through an online only platform which means that companies offering this service often have low overheads and pass the savings on to the investors in the form on better returns. High street banks usually cannot match these return rates without subsidy.
Zopa, was the first UK lender of this type and it remains strong today, working with new startups such as Unshackled.com to fund buyers wishing to borrow at a rate often in the best buy tables. See our Unshackled.com review to see how Zopa Peer to Peer lending supports the mobile sales industry.
Does a high street bank’s “brand” give you more?
Often these days bigger names offer the idea of security but very little customer benefit. High street banks will usually only be competitive for mortgage lending to existing customers, otherwise they’ll generically offer over-priced lending, premium account options or scandalous insurance products.
Peer to Peer lending, also sometimes terms crowd-lending, offers better rates straight away. From the outset it looks very much like a standard “savings” option, but it is important to know you’re making an unsecured investment as the returns are based on unsecured collateral from various companies, individuals and sectors and the returns are variable. You are protected by the Personal Saving Allowance and the P2P industry is now fully regulated.
Does a familiar name matter when investing?
Names and brands in the current day market place mean very little. For example, I wrote about the little know Kingston & Unity Junior ISA earlier this year. Often, a name has been sold on or bought out multiple times meaning the “name” that you think you trust is often an entirely different beast underneath the surface.
Not being familiar with a name in this sense should not put borrowers of alternatives to the high street names. To be clear I always advocate budgeting and cost-cutting to be able to fund daily life, but occasionally little help may be needed and P2P lenders are often giving good “best buy” rates. In particular they are starting to undermine the truly awful vultures that are payday lenders and push them out of the UK market place. I blogged about the perils of the Debt Trab in my article for the charity The Children’s Society.
If nothing else I hope this article gives potential borrowers the idea to look and consider all the options before agreeing to any personal loan. Just like with a mortgage, the savings could be huge if you get the interest rate right.