What Is The Difference Between P2P Lending And IFISAs?
This page was last updated on 6 April, 2018
is lending directly to individuals or businesses, including, sometimes, property owners. is usually the same, with the advantage that any interest you earn and gains you make are always tax free. However, there can be a minor catch to watch out for.
Some things in the world of investing can seem horribly complicated, but they usually aren't if they are explained simply and properly.
Let's see if I can do that for you here when explaining the difference betweenand .
is not a phrase that has been written in stone and legally defined. So some companies call themselves platforms when 4thWay would say they are not. The reverse is also true: some platforms want to position themselves differently and so don't say they are “P2P”, when 4thWay does.
is just one of several phrases that are usually used to mean the same thing: marketplace lending, online direct lending and other phrases.
At 4thWay, we define aplatform as having all four of these features:
- It is online lending or e-lending.
- Lenders lend directly to the borrowers, rather than to the platform in the middle. Alternatively, legal contracts are set up that effectively achieve the same arrangement.
- If the platform in the middle goes bust, the money that lenders have lent is ringfenced, so that the platform in the middle can't use it to pay off its own debts.
- If the platform closes down, any repayments that borrowers continue to make are still made in full to lenders, except if some of that money is needed to pay excess fees to any trustee or administrator that steps in to wind down the existing loans.
Really, what this means is that if RateSetter or Money&Co or any other P2P lending platform borrows a fat load of cash from Barclays, and then goes out of business, your loan money can't be diverted to pay back Barclays. It is still due to be repaid to you.
The risk of losing money in these cases has been low historically and I strongly expect it to remain low.
What is an?
An Innovative Finance Individual Savings Account is a tax-free wrapper.
You'll have heard of similar wrappers with the cash ISA (a tax-free savings account) or a stocks and shares ISA (a tax-free stock-market investment account).
Theis for online lending. Typically, this also means , but it seems that a minority of providers do not fit into all four of the bullets in the list above.
That means that someproviders might have additional risks for lenders if they go out of business, with an additional risk that money is diverted away from you.
With, any interest you make, or other gains, is tax-free forever. Contrast this with regular P2P lending accounts, which offer substantial tax-free gains for many people, but not so many low-tax benefits for higher or additional earners or those who are lending a large amount.
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