What Is The Difference Between P2P Lending And IFISAs?

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This page was last updated on 6 April, 2018

https://www.4thway.co.uk/?p=14133

Peer-to-peer lending is lending directly to individuals or businesses, including, sometimes, property owners. IFISAs 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 between peer-to-peer lending and IFISAs.

What is peer-to-peer lending?

Peer-to-peer lending is not a phrase that has been written in stone and legally defined. So some companies call themselves peer-to-peer lending 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.

Peer-to-peer lending 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 a peer-to-peer lending platform 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 IFISA?

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).

The IFISA is for online lending. Typically, this also means peer-to-peer lending, but it seems that a minority of IFISA providers do not fit into all four of the bullets in the list above.

That means that some IFISA providers might have additional risks for lenders if they go out of business, with an additional risk that money is diverted away from you.

With IFISAs, 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.

For your information, 4thWay only lists IFISAs from peer-to-peer lending sites.

There are restrictions on putting money into IFISAs. Read more about the pros and cons of IFISAs, and the restrictions, in our very comprehensive IFISA guide.

Read about peer-to-peer lending in our guide pages.

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.

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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

×
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