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News coverage of P2P lending
There was a high profile article on the BBC news website on peer-to-peer lending today, and this has accounted for the biggest ever number of hits on the P2P Money website in a single day. However I was concerned reading some of the comments on the article which goes to show as an industry more education is required.
I suspect scammers will quickly start taking loans and disappearing with the cash. With no protection from them the savers are running a big risk themselves. They con banks but they take the losses. What we need is these proper though still too low rates to savers, from proper banks. Defaulting thieves will soon cotton on.
The majority of the P2P companies use the same credit checks as the banks, so there is no difference there. The bad debt figures speak for themselves, with the top 4 companies (Zopa, Funding Circle, RateSetter and ThinCats) achieving bad debts of less than 1% and also lower than their own estimates.
How long before the first scandal and savers lose their money ?
I just hope that everyone remembers that higher interest rates don't come without risk and the poor taxpayer isn't (yet again) expected to bail them out.
Unfortunately some lenders have lost money as people will be unable for one reason or another to pay back, but that will happen with any loan. What lenders need to do is diversify and ensure that their money is spread as thinly as possible. They should then experience the typical bad debt risk. Some lenders have experienced a negative return with some of the smaller P2P companies, and some have ceased trading. However the top 4 companies have performed better than estimates, so a diversified lender should have achieved a positive return.
The bank bailouts were required when banks could not repay savers funds, but with peer-to-peer it is the lender who is taking the risk. Some companies, namely RateSetter, have a provision fund which can step in and repay lenders if a borrower should default, to reduce the risk still further.
Peer-to-peer lending is still young compared with the traditional banks, but it is growing in popularity. For further information please look at the details of all peer-to-peer companies in the UK.