SOCIAL LENDING

Peer-to-peer lenders are filling the funding void

Borrowing and lending through a social lending site means you can miss out the middleman – and get a better deal, says Ruth Jackson

Since they first arrived on the scene six years ago, peer-to-peer lending companies have created a whole new lending world. There are now several players in the market, but the big three are Zopa, Funding Circle and RateSetter. These firms allow individuals, or small businesses, to borrow money from other individuals without the intervention of a bank.

For borrowers the service has become increasingly vital, as loans from traditional sources such as banks or building societies have dried up in the wake of the banking crisis. People are able to borrow money at a much lower rate than they would find through traditional means – usually around 8%APR. In comparison, the best rate available from high street lenders is around 9%; but that is only available for people with squeaky-clean credit records – anyone else can expect a rate closer to 15% or 20%.

One person who has really benefited from social lending is John Bold, 39, from Ellesmere Port. He had debts of £1,300 built up on a Vanquis credit card with a rate of close to 50%. When he started shopping around for a personal loan to consolidate that debt he was quoted rates ranging from 18% to 24%; then he saw an advert for Zopa. He was given a rate of 13.9% including all fees, and was delighted with the service. “The best part of it was that I could overpay without penalty, so whenever I had a spare £20 I would log in to Zopa and pay off a bit more of my debt,” he says.

As for lenders, if they are prepared to take the risk, they can see returns of around 8.3% over the period of the loan – which can be anything from one to five years, depending on which company you use. Mark Barry-Jackson, 62, from Surrey has been very impressed by Funding Circle. “I put in £500 last November, but it wasn’t long before I topped

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