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Guide to Peer to Peer Lending in the UK

Updated on September 30, 2013

Introduction to UK peer to peer lending

Peer to peer lending or some call it 'social lending' is a fast growing industry that's growing in popularity with both borrowers and lenders in the UK. It emerged on the financial scene in 2010 and today in 2013 is a hot topic, especially with the news that in May 2013 search engine giants Google invested $125 million in peer to peer lending company, Lending Club.

What is peer to peer lending? in a nutshell, peer to peer lending allows those with money to lend directly to individuals or businesses that are looking to borrow money. Usually this is to help a business invest and grow but there are increased news items about peer to peer lending being put to other good uses such as UK students financing their university study via peer to peer lending.

It's clear to see why peer to peer lending is great for the borrower, but what about the lender?

For the lender, peer to peer lending provides a good solid return on investment that often beats bank interest rates whilst helping out those that need it and can benefit from it. There are of course more risks to the lender choosing this investment route but as more and more legislation and financial checks are put in place, the risks are becoming very low.

A recent study by innovation charity called Nesta has estimated the value of the peer to peer lending sector to potentially account for approx £12 billion of loans a year.

Peer to Peer Lending Companies in UK

As of May 2013, peer to peer lending in the UK is growing fast in popularity. A brief history of peer to peer lending in the UK started with Zopa who were the first peer to peer lending company setup in 2005.

In 2010, the UK observed a large influx of peer to peer lending companies enter the market such as Funding Circle, RateSetter and YES-secure to name just a few companies.

In 2013 more niche peer to peer lending sites have been setup in the UK and here we look at some of the best peer to peer lending platforms in the UK:

Funding Circle

Whereas Zopa which we talk about below uses a market platform, Funding Circle's platform uses a list approach. Zopa were one of the first p2p lending companies to allow the ability for lenders to sell their loans other than at face value.

Those wishing to borrow money can submit loan information e.g. what the loan will be used for along relevant financial statements that allows Funding Circle to group borrowers into risk categories (A+ to C). This allows them to be able to provide an estimation of bad debt.


  • Lenders = 1% annual fee

  • Borrowers = 3% one-off fee on completion

Lenders also have the option to sell their loans on to a secondary market for a 0.25% one-off fee.


Zopa's lending is all via a large market aptly called 'Zopa market' allowing automatic lending so borrowers have access to low rates quickly.

A lender will put money into this market and then the money is automatically split between borrowers.

The lender can set their interest rates for each risk grade. Zopa offers loan periods of 24, 36, 48 and 60 months.


RateSetter emerged on the peer to peer lending company market back in 2010 and is now listed as one of the top 3 peer to peer lending companies in the UK.


Lenders = 10% of interest paid

Borrowers = charged a fixed fee on completion plus a credit fee depending on their credit rating.

RateSetter is currently the only provider offering a rolling monthly loan which can be repaid at any time, or converted to a fixed-term loan.


More recently in 2013 there have been smaller UK local based peer to peer lending companies setup. An example of such is Folk2Folk which is a new concept in peer-to-peer lending based in South West England (Cornwall and Devon).

Folk2Folk are one of the first peer to peer lenders to provide secured loans with borrowers putting forward properties (other than a borrower’s home) as security.

Folk2Folk pride themselves in offering a 'local touch' via lending to people or businesses with a connection to Devon and Cornwall and draw upon a significant amount of local knowledge as part of their vetting process.

Encash (YES-secure)

Newer to the market than previous peer to peer lending companies mentioned except Folk2Folk, Encash was launched in 2012, Encash offer both personal and business loans.

Encash use a listing style approach that is very similar to the one used by Ratesetter

Again, borrowers risk are grouped (A* to E)


  • Lenders = 0.9% annual fee

  • Borrowers = several fees such as an application fee

Lenders have the option to invest into higher risk markets where they can set rates as high as 18% AER.

Lenders also have the option to sell their loans on a secondary market for a one off 1% fee.


Another UK peer to peer lending company launched in 2010, ThinCats targets the bigger borrowers, usually businesses that are looking to borrow loans of over £50,000

Thincats only deal with secured lending so for lenders there is a lower risk involved than most other peer to peer lending companies in the UK. Lenders can lend money via a self invested personal pension with tax advantages or alternatively via an investment fund.

Would you consider borrowing money via peer to peer lending?

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