It may still be a relatively new sector, but the public perception of peer-to-peer (P2P) lending is changing quickly.
Data from the Peer-to-Peer Finance Association trade body shows there were 181,068 consumers actively lending through its member firms in the first quarter of 2017. An active lender is defined as someone with at least £1 lent through a peer-to-peer provider.
This compares with the 111,226 active lenders recorded in the first quarter of 2015.
Moneywise readers are also increasingly interested in using peer-to-peer as they look for a better return on their cash.
Back in 2014, 84% of Moneywise readers ruled out peer-to-peer as an option for their savings. Yet by 2016 71% of respondents to our poll said they were considering it, with 39% already investing some of their cash in peer-to-peer.
Our most recent poll, conducted in May 2017, found that 48% of Moneywise readers were now using peer-to peer.
Stuart Lunn, chief executive officer of P2P platform LendingCrowd, says consumers are warming up to the idea of investing in this way.
“What we are seeing is a significant shift, with many new investors being attracted to the industry over the last 18 months,” he says.
“Given the backdrop of low returns on cash and perceived risk of stock market falls – investors are therefore looking at P2P investing as an alternative risk/return profile.”
Of course, investing in P2P doesn’t come without risk. Unlike cash savings, which are protected up to £85,000 per provider by the Financial Services Compensation Scheme (FSCS), there is no such safety net for P2P investors.
Even if your platform offers investors the chance to sell loans, you may not always be able to get your cash back as quickly as you want - especially in the event of a financial downturn.
Read Moneywise’s guide to the risks of peer-to-peer lending to find out more about the dangers of P2P.
Who has invested in peer-to-peer?
A wide range of people are investing using peer-to-peer. This includes consumers looking for a better return than they can get from cash savings accounts, or those looking for an alternative to traditional investment.
Reader David Miller says he has invested around £2,000 in peer-to-peer and has been satisfied with his return, which is around 8.9%.
“I am very pleased with this alternative form of investment,” he says. “It is riskier than more conventional and safer investments, but my experience has been a positive one and I will increase my investment in the future.
“However, I would always stress that this must be part of a balanced portfolio of investments. In my case, this includes both Cash and Stocks and Shares Isas, shares, premium bonds, property, and now P2P lending.”
However, other readers are more cautious about peer-to-peer.
Moneywise reader Mark Tucker says: “I have invested thousands in numerous firms, looking to spread the risk. My only concern is whether my money would be lost if any of the firms went bust.”
From the platform perspective Mr Lunn says the demographics of peer-to-peer customers are also changing, buoyed by the launch of the Innovative Finance Isa.
“Historically investors have tended to be male, over 50, based in South East England and of above average disposable income,” he says.
“However, the influx of new investors is broadening this to include more of the UK, a higher proportion of female investors and a wider age range. The Innovative Finance Isa is helping this shift, given the more general adoption of Isa products and the willingness for existing Cash Isa and Stocks and Shares Isa investors to diversify into the new Isa category.”