10 Ways To Get Your P2P Lending Money Back!
This page was last updated on 25 May, 2021
This guide will tell you how to lend more swiftly through peer-to-peer lending accounts and IFISAs or get set up so you can get your money back as soon as you want it. (Skip down the page to the 10 ways to lend faster or get your money back more quickly.)
But some of you might be wondering why we're making this fuss at all. Isn't it easy to lend your money and then sell out, whenever you want to?
In short, no. Not always.
Right from when we opened, day one, on November 24th, 2014, 4thWay's experts have been explaining that you might take a lot longer to get your money back than you initially expected. With the natural life of most loans being up to five years, you can't always expect easy access. This is called “liquidity risk”.
Liquidity risk is the flipside of the coin: when diversified investors with sensible strategies are being offered relatively stable investment returns (through money lending or anything else), you can always expect one of the costs to be less certainty that you can get your money back rapidly. You might have to wait.
Money lending, on average, is not volatile like share investing is, on average. But, unlike share investing, the risk of you needing to take quite a while to get your money back is considerably higher. (One of the main causes of stock-market volatility is the very fact that you can get your money back instantly, if you want to, by accepting a lower price for your shares. This is rarely possible in P2P lending, where interest rates and repayment periods are fixed.)
To put it mildly, this has not been an easy message for us to get across to lenders, or to the press, what with the P2P lending sites being very casual about how they explain their “rapid return” or “early access” features – which do not actually guarantee an early exit from lending.
Boasts from some P2P lending companies over the years that lenders have typically been receiving their money back in 24 hours are surely true. But it makes lenders across the industry complacent.
Less speedy repayments in some recent years, especially in 2020 and 2021 due to the pandemic, have slammed home to some lenders that P2P lending accounts are indeed investment accounts and not savings accounts. While lending returns across the industry remain positive and robust, easy access has been harder to come by.
Lenders both looking to lend their money or to sell out quickly have sometimes taken longer than they wanted.
In this guide we'll show you:
- Why buying and selling loans won't always be speedy, and can sometimes be nigh-on impossible.
- What the delays cost you and how long they might last.
- The silver lining: that your risks actually come down due to slow lending.
- Plus: we'll tell you 10 big steps you can take to lend and exit more swiftly (skip straight to that section).
But, firstly, here are some real, historical examples of where people have actually had trouble either lending swiftly or selling loans early:
Selling on Lending Works during the pandemic
During the 2020 and 2021 pandemic, Lending Works* a large number of lenders have been unable to sell any loans that were made in 2020 or earlier since roughly the time the pandemic started. This lengthy delay hammers home what we had written to lenders in this guide prior to the pandemic starting:
“You need to understand that delays in buying and selling are part-and-parcel of P2P lending at times and – above all – the delays will sometimes be far longer than those experienced so far.”
Selling on Funding Circle in 2019
A user reported to us delays of 45 days to sell loan parts on Funding Circle. In 2019, these delays reached over 100 days.
Buying on MarketFinance in 2017
Some years ago, MarketFinance published sufficient statistics to see that, typically, one-third of lenders' money is unlent at any one time, while lenders wait for borrowers to give their money a home.
Buying loans on Zopa in 2016
Through 2016, Zopa lenders complained it could take weeks to lend their money. Zopa dealt with this by telling people how long they have to wait (simply knowing how long was reassuring for many lenders) and ultimately by putting a hold on new lenders opening Zopa accounts. Zopa re-opened briefly to new lenders in the spring of 2017, closed again, and then re-opened again in autumn 2017.
Selling loans on Zopa in 2016
Amazingly, around the same time, lenders also had trouble trouble selling their loans on Zopa. It is very unusual to have the situation where it is hard to both lend and sell swiftly. Here, the cause was a technical issues, that Zopa fixed. Selling times went back down to a few days instead of weeks.
Buying on Growth Street (which is no longer open)
Some lenders complained to 4thWay of the difficulty of lending swiftly. Growth Street made a massive of effort to get partner businesses on board that fixed the problem, although it took many months.
Buying on Lending Works
Not many moons after Lending Works started, we heard from Lending Works* lenders that they were taking three weeks to lend. Thankfully, we have no evidence that this turned into a long-term problem.
Yet it does complete the circle, what with our list starting with Lending Works lenders' problems during the pandemic on the sell side.
Why buying and selling won't always be speedy
You need to understand that delays in buying and selling are part-and-parcel of P2P lending at times.
You should not expect that you will always be able to sell your loans immediately for the same amount you initially paid. No investment, including P2P lending, is intrinsically designed to work like that. Your risks are tied in to a natural duration – typically the length of the loan – and therefore your money can get tied in along with it.
With the stock market, provided you are willing to sell your investments at a big loss, you can almost always find another buyer. You can also pretty much always buy shares – provided you are willing to pay a high enough price. That is just part of the reason why the stock market is highly suited to those who want to invest for 10-30 years, because it can take a long time for large fluctuations to even out.
P2P lending, thankfully, has much shorter “natural” horizons than the stock market, being less volatile over the shorter term and usually with definite end dates to the loans. But you must still be prepared to wait sometimes before you can lend or sell.
Technical issues like Zopa's aside, the cause of slow lending or selling will normally be an imbalance between the number of lenders and borrowers.
If approved borrowers want to borrow £10 million and lenders want to lend £11 million, the market is very balanced. Just a few lenders will need to hold on to a small portion of their money for just a little bit longer, while they wait for a few more borrowers to come along.
However, if lenders want to lend £30 million and borrowers using the P2P lending site require just £10 million, this will lead to huge delays in lending. (It can also on some P2P lending sites press interest rates downwards due to the competition to lend, but that's another story.)
Another short history lesson: during much of 2017, Zopa had over 15,000 new potential lenders on its waiting list.
Now the flipside: exiting loans early. Say that borrowers are already borrowing £30 million and lenders want to collectively sell £25 million in loans right away, before they are fully repaid by the borrowers. Those lenders wanting to sell £20 million will likely be facing a long wait for enough lenders to buy their loans.
Those examples were extreme. Imbalances aren't usually that large. But as MarketInvoice has shown, with one-third of lenders' money sitting idly in cash, imbalances can be very substantial.
During times when specific P2P lending sites get a lot of particularly good or bad press, or when they are having other troubles, an imbalance can grow. Good press has certainly, at times, slowed loan-buying times for lenders using some P2P sites. 4thWay alone has impacted the flow of money into and out of P2P lending sites by tens of millions with our buy or sell tips.
It is almost certain that, at times, some lenders will find it so hard to sell loans early that they will simply have to wait until the borrowers repay them naturally over time.
Possibly the biggest cause of widespread delays will be when there is either a huge P2P lending or nationwide panic, recession, property crash…A real shocker. You can expect at these times that a lot of the lenders – those who lent their money without really learning what they were doing – will try to panic-sell their loans. In the tumult, many might not be able to get out early at all. They will have to ride the waves like the more patient investors choose to do on their own.
Clearly, if a P2P lending site has to shut down, lenders should expect big delays to getting their money back. (Although, while there is a risk of losing money, we think the risk of losing any money, or a lot of money, in that situation, is surprisingly small. Read more here.)
What it costs you when you have trouble selling early
Getting your money back is the most important thing for investors.
It could be sensible for lenders to assume that, in an extreme worst-case scenario, you are unable to sell your loans early at all. It makes sense to assume, when lending, that some of your money will be on loan all the way until the last repayment from the last borrower.
What does this delay cost you? It doesn't really cost you anything. Indeed, you continue to earn interest the whole time the money stays out on loan.
However, there is an alternative cost to you: you can't use the money for something else. Furthermore, if you have lent your money before you were confident in what you're doing, delays during a recession might cost you in terms of suffering high anxiety. You might wonder if you will ever get your money back.
What's more, if your appetite to risk has changed, you might no longer be happy lending that money. Loss of happiness is a cost too.
What is the cost of delays in lending your money?
Loss of interest due to delays in lending your money isn't a “cost”, exactly. You have simply not been lending every penny of your money the whole time, so you've not been earning money on every penny.
However, not earning interest is what economists call the opportunity cost and what we in finance call frictional costs. The part of your money that is not being lent is earning you no interest and so you're not using it at all. It could have been invested in the stock market, earning interest in a savings account, or buying you a takeaway. You know, doing something useful.
That “opportunity” to do something else with your money is taken away from you while it is sitting in cash, and unlent, in a P2P lending account.
Your risks actually come down due to delayed lending
If your money can't be lent out right away, it sits in a segregated (separate) client bank account, usually at a high-street bank such as Barclays or Lloyds, which is set up and held by the P2P lending site. Your money there earns you no interest, but the P2P site cannot spend it; it is your money.
Furthermore, while it is in a UK bank account it is usually protected by the government through the Financial Services Compensation Scheme, with all the usual rules and limits that apply to that scheme. This gives you protection in the event the bank itself fails. (To see where your unlent cash has this cover, read Which P2P Lending Sites Offer FSCS Protection?)
So the risk of losing any of that unlent money is very low.
The bottom line is that the interest you earn will be less than expected if some of your money is unlent, but your risks also come down by the same or similar proportions.
10 big steps you can take to lend and/or exit more swiftly
1. Lend across many P2P lending sites to reduce the risk that a lot of your money gets stuck with a slow one or one that starts having early-exit issues.
2. If you're mostly worried that your money will not always get lent out quickly enough, include some interest-only P2P lending sites, such as ArchOver* (read review), Invest & Fund (read review) or Proplend* (read review) so that you don't have to keep re-lending repayments.
3. If you are mostly worried that you won't be able to get your money back swiftly enough, go for P2P sites that do repayment loans. These loans pay you some of your original loan back every month as well as some interest. With these, simply by switching off autolend, you can generally expect to have more than half your money back within 18 months. This is the natural, cost-free way to get your money back. These include Zopa (read review), Funding Circle (read review), Lending Works* (read review), Crowd2Fund* (read review) and LendingCrowd* (read review).
4. So your money comes home faster, you could also go for sites that do shorter-term lending. This will be bridging lenders and asset-backed lenders like CrowdProperty (read review), Loanpad* (read review), HNW Lending* (read review), CapitalStackers* (read review), CapitalRise (read review), Invest & Fund (read review), LandlordInvest (read review), and some Assetz Capital* loans (read review), for example.
But try and avoid the P2P sites that offer short loans but usually roll them over into new ones. A now defunct P2P lending website called FundingSecure, for example, nominally did six-month loans, but borrowers were usually allowed to keep borrowing for another six months, indefinitely, so long as they paid the interest. And they often did. In these situations, you might not be able to get your money back if no other lenders will buy your loans at the end of the term.
And also put less money in sites that tend to have high bad debts and high recoveries. This means that typically lots of loans go bad and, while there is an excellent chance of recovering the bad debts and interest is paid on top, it can take a long time. These includes sites such as Assetz Capital* (read review) and HNW Lending* (read review).
5. To eliminate the risk of money being unlent in P2P lending accounts, go for sites that prefund loans or pay you interest from the time that you pledge your money.
Prefunding means that the borrower has already received the cash in advance, so all you have to do is buy part of the loan from the P2P site. Since you buy immediately, you lend immediately, without waiting around for the P2P site to allocate money you transfer them in advance. Such sites include CapitalRise (read review) and HNW Lending*.
Kuflink* (read review) pays interest from the point you pledge your money to a loan, so even if it takes days or weeks for the loan to be fully funded and go live, you don't miss out on interest earned.
6. Another strong way to stop money sitting around is to go for sites that don't ask you to send any money until a loan is agreed, i.e. you pledge how much you will lend to a borrower, and then you send the money only once the borrower has received enough pledges from lenders to fund the whole loan. This includes CapitalStackers* (read review), SoMo and ArchOver*.
7. To lend faster, look for sites with online secondary markets – where lenders can buy and sell loan parts to and from each other directly. With these, you can see for yourself by looking at the market if there are loan parts available in advance, before you upload your money and lend straight away by buying those existing loan parts. These include Proplend*, Relendex, LendingCrowd* and Assetz Capital's* manual lending account.
8. You might be able to increase your chances of exiting early if you go for sites that fund their easy-access accounts. This means that, yes, you still usually sell your loans to other lenders, but Assetz Capital* actually puts cash in to increase the chances of a swift exit – so long as that cash lasts.
Do bear in mind though that it is features like this that can mislead you into thinking you can withdraw quickly. In a recession or if lenders become worried, it is likely that any cash set aside to aid swift withdrawal will rapidly be depleted.
9. Normally, you are not allowed to sell loans that have gone bad, which leaves that part of your money sitting in a limbo while you hope for recoveries to be made. So look for P2P lending sites that have few loans that fall late or go bad, or that have reserve funds that usually protect you from those things. You might want to avoid asset lending (that's lending against yachts, luxury cars, fine wine and so on) and short-term property and development loans, if you're particularly keen on dodging that situation. Generally speaking, loan types that usually attract higher interest rates can also have more loans that get passed to debt collectors for a long-haul recovery process.
10. This last point is more to warn you about a potential red herring. You might occasionally be offered guaranteed interest at all times, meaning you earn money even when your money is not on loan. This can put a lot of pressure on the P2P lending site to constantly find borrowers to lend your money too, so that it earns enough interest from borrowers to pay you your dues. Potentially, this could lead to the P2P site approving borrowers left, right and centre. So be confident about the people running the P2P business or look to see that it is backed by a bigger company with lots of money.
This was part six of our ten-page P2P lending guide
- Read part five: 4-Step Strategy to Safe Peer-to-Peer Lending.
- Read part seven: Peer-to-Peer Lending Vs Other Investments.
- See the contents of the whole guide.
Read our Quick Expert Reviews on most of the above P2P lending sites by visiting our comparison tables.
Independent opinion: the opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
*Commission and impartial research: our service is free to you. We show dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from ArchOver, Assetz Capital, CapitalStackers, Crowd2Fund, HNW Lending, Kuflink, LendingCrowd, Lending Works, Loanpad and Proplend, and other P2P lending companies not mentioned above when you click through from our website and open accounts with them. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.