Peer to Peer Lending (Financial Economics)

Peer-to-peer lending happens when individual savers are able to lend directly to borrowers, often through online peer-to-peer lending platforms.

Market participants include Zopa (launched 2005), Crowdcube (launched 2009), Funding Circle (launched 2010), Rate Setter (also launched 2010) and Thincats (launched 2011).

Both the investor and the borrower benefits as the lender achieves higher interest rates and the borrower lower interest rates than would be on offer if either had gone through a commercial bank.

Lenders are at more risk because loans are generally unsecured – the risk of borrower default is higher

Individuals can choose the level of risk they are prepared to tolerate – the higher risk loans offer a better rate of interest

Funding Circle

Funding Circle is a peer-to-peer lending platform that allows investors to lend money directly to small & medium-sized businesses. Funding Circle is the largest P2P lender in the UK.