An Illustrated Guide To The Innovative Finance ISA
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From April 6th 2016, savers will be eligible to earn tax-free income from peer to pere lending.
What is Peer to Peer Lending?
Peer to peer lending websites connect savers directly with borrowers, cutting out the banks and allowing savers to target higher returns than they would get from a traditional Cash ISA.
Over £5 billion has been lent in the UK so far, mostly to Small and Medium sized businesses. During 2013/14 the UK Government lent a total of £60 million through peer to peer lending website, Funding Circle as a means to provide efficient finance to small UK businesses.
What Are The Risks?
Peer to peer lending is not protected by the Financial Services Compensation Scheme and savers’ capital is at risk. However, many peer to peer lending platforms operate reserve funds which are designed to protect their savers from missed or unrecoverable loan repayments.
Loans may also be split into many ‘parts’, allowing savers to lend small amounts to dozens of individual businesses. Should any single business be unable to repay a loan, the remaining loan parts continue to earn interest.
Supporting UK Business
400,000 savers are expected to benefit from the Innovative Finance ISA, which will be a huge boost to the UK’s 5.2 million SMEs, many of whom have been turned down by the high street banks.
Flexibility When Lending
Savers can get started from as little as £10, and can choose a loan term to suit their needs – from 30 days up to 5 years.
Updated: Friday, August 10th, 2018