Compare P2P lending accounts and IFISAs now

Extra Risk In Buying Second-Hand FundingSecure Loans

Click "Learn" to get help

By on 4 September, 2018 | Read more by this author

With most P2P lending sites, the interest is paid to the original lender and any new lender buying second-hand loan parts just buys the actual loan part.

When a borrower repays early

However, with FundingSecure, when you sell a loan part then the new lender buys the loan plus all the accrued interest in the loan. For the buyer, this presents a potential, albeit small, additional risk.

I think such losses are still going to be relatively rare, but still worth pointing out to you.

If you buy a loan part for £100 and interest of £5 has accrued, and assuming the seller sells at par for £105, when the borrower repays the loan you can expect to be paid back £105 plus any interest earned since.

However, let's say that the borrower repays early. You have in your possession £5 worth of interest, which could be taxable at your own income-tax rate. If you're lending in a FundingSecure IFISA then it won't be.

And if you're a basic-rate or higher-rate taxpayer and you don't have much money in P2P lending accounts and savings accounts then through the Personal Savings Allowance you have a good chance you won't need to pay tax. (Read our tax guide for more on that.)

Otherwise, you could have a tax bill of between £1 and £2.25. So you'll have paid £105 + up to £2.25 in taxes, but received just £105. An instant tax loss.

When you buy a loan just before it is due to be repaid

You encounter the same problem when you buy a loan near the end of its life. By this point, almost all the interest on the loan has already been accrued. So, having bought all the interest off the previous borrower, you will need to pay all the taxes on it too.

Here, the risk of a loss is higher, although my comments about dodging these taxes with the Personal Savings Allowance or IFISA still apply.

Visit FundingSecure.

You can read how trading loans works, and the pros and cons, in Trading Loan Parts At A Profit Or Loss.

You can see a table of P2P lending sites that allow you trade loans in Where Can You Buy Or Sell Existing Loans?

Our service is free to you. We don't receive commission from the above-mentioned companies. We receive commission from some other P2P lending companies when you click through from our website and open accounts with them. This doesn't affect our editorial independence. Read How we earn money fairly with your help.

Leave a Reply

Your email address will not be published. Required fields are marked *

Today’s average interest rates

What is the “4thWay”?

There's the savings way, the property way, the stock-market way, and now there's the peer-to-peer lending way. The 4thWay® to save and invest.
Learn more.

What does 4thWay do?

We help people save and make more money, more safely when they cut out the banks and lend directly to other people and to businesses.

Why use 4thWay?

4thWay® is shaped by investors, bank risk modellers and a senior debt specialist, and we're governed by our users to ensure our comparison services and research are trustworthy and complete.

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×

Why are Orchard’s interest rates different?

Orchard’s lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Orchard’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Got it

×

Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

×
Back to top