7 reasons not to lend through peer-to-peer lending sites

2 min Read Published: 27 Apr 2012

Money falling down a drain With investors always looking for a better return on their investment it's inevitable that peer-to-peer lending will appear on their radar. Now, whilst there is no reason why these sites could not be considered as part of an investment portfolio, I do feel that a few words of caution would not go amiss.

Anyone who read my site will know I'm not a fan of social lending sites. So to balance the deluge of pro-social lending coverage out there, here are 7 reasons not to lend through peer-to-peer lending sites -

  1. All loans are unsecured so any lender must be aware that defaults do occur and that they could lose some or all of their money
  2. As these sites are fairly new there is no robust data on default rates or how many loans are in arrears
  3. At present, these sites are not regulated and therefore there are no common industry standards or established complaints procedure should something go wrong
  4. As a lender once a loan is agreed you are tied to the term of the loan or incur a charge if withdrawing early
  5. Lenders do not receive the actual interest rate advertised as the site will take a cut of around 1%
  6. Tax is paid on any interest earned, less lending site fees, but losses due to bad debts cannot be offset against tax liability
  7. Advertised interest rates do not take into account the effect of bad debts which could bring this rate down to below that earned in a high street savings account
If you want more information read my earlier post on social lending sites for more information.

 

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