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10 Ways To Get Your P2P Lending Money Back!
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 and good investing discipline is forced on you when holding on for longer.
- Plus: we'll tell you 10 big steps you can take to lend and exit more swiftly. (Skip straight to that section.)
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 specialists explained and emphasised 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 comes hand-in-hand with stability in your results. It's 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 less certainty that you can get your money back rapidly. You might have to wait.
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.
So, money lending, on average, is not remotely as volatile as 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.
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 historically 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 also makes individual lenders complacent.
Less speedy repayments in some recent years, especially back 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, early access became harder to come by for a while.
Still, most borrowers will ultimately repay the loans to you according to the repayment schedule in your contract with them.
Real-life examples of problems buying loans or selling them early
Lenders both looking to lend their money or to sell out quickly have sometimes taken longer than they wanted.
Here are some real, historical examples of where people have actually had trouble either lending swiftly or selling loans early:
Buying on Assetz Capital in 2020-2021
Assetz Capital paused P2P lending to focus on government-backed, COVID-19 pandemic loans. It wasn't allowed to offer these types of loans through its online P2P lending platform, so new lending almost completely dried up. It was very difficult to buy new loans for nearly two years.
Buying and selling on Crowd2Fund in 2020-2021
Crowd2Fund paused both the buying and selling of loans, meaning lenders were hit in both ways: you couldn't re-lend money easily and you couldn't get out of your loans faster than borrowers repaid them.
It's unclear how much the pandemic was involved in this, since Crowd2Fund stated at the time that it was implementing improvements to its loan exchange.
Selling on Funding Circle in 2019
A user first reported to us delays of 45 days to sell loan parts on Funding Circle. Delays selling loans eventually reached over 100 days. The probable cause was a mismatch in supply and demand.
Buying on MarketFinance in 2017
Some years ago, MarketFinance (now Kriya) typically left around one-third of lenders' money unlent at any one time, by 4thWay estimates, while lenders waited for borrowers to give their money a home.
Buying loans on Zopa in 2016 to 2017
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.)
At one point, Zopa had over 15,000 new potential lenders on its waiting list.
Selling loans on Zopa in 2016
Amazingly, around the same time, lenders also had trouble selling their loans on Zopa. It's very unusual to have the situation where it's hard to both lend and sell. Here, the cause was a technical issue, that Zopa fixed. Selling times went back down to a few days instead of weeks.
Buying on Growth Street in 2016
Some lenders complained to 4thWay of the difficulty of lending swiftly. Growth Street made a massive effort to get partner businesses on board that fixed the problem, although it took many months.
Why isn't buying and selling as easy as on the stock market?
With the stock market, provided you're 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're 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, and not shorter periods. 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 and usually with definite end dates to the loans.
But you must still be prepared to wait sometimes before you can lend or wait to get out if you can't sell early right away.
Why? Because, unlike the stock market, the price of your lending – i.e. the value of the outstanding loan and the interest rate being paid – is usually fixed. This gives stability, but it means that prices don't swing violently to appeal to a party on the other side of the deal.
During times when specific P2P lending sites get a lot of particularly good or bad press, 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, for example.
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's 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.
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 in some of your lending accounts at all.
It makes sense to assume 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's 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 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 cash drag. 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's 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 Invest & Fund* (read review), Proplend* (read review) or Somo* (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. Crowd2Fund (read review), for example.
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 Somo* (read review).
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 for the delays is paid on top, it can take a long time. HNW Lending* (read review), for example.
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 Assetz Exchange* (read review), CapitalRise* (read review), HNW Lending*, Loanpad* (read review) and Unbolted (read review).
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. Loanpad also currently pays interest on cash while it is waiting to be re-lent.
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), CrowdProperty (read Review), HNW Lending* (read Review) and Sourced Capital (read Review).
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 Lendwise* (read Review), Proplend* (read Review), Relendex – and many, many more.
8. You might be able to increase your chances of exiting early if you go for sites that seed their lending accounts with some cash of their own. This means that, yes, you still usually sell your loans to other lenders, but sometimes the cash held within the account is used to buy your loans off you. This increases 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.
As of October 2023, we know of no lending accounts where this is currently on offer.
9. Normally, you're 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 very late or go bad, or that have reserve funds that usually protect you from those things.
But the two companies that also leap out at me that have – at least up to this point – had the fewest loans fall late and for the shortest period of time – are perhaps Invest & Fund* (read review) and Assetz Exchange* (read review). I say “perhaps”, because it often depends how you measure it.
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 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 10-part guide.
Read our Quick Expert Reviews on most of the above P2P lending sites by visiting our comparison tables.
Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
We are not financial, legal or tax advisors, which means that we don't offer advice or recommendations based on your circumstances and goals.
The opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by ESMA or the FCA. 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, fees and impartial research: our service is free to you. 4thWay shows 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 Assetz Exchange, CapitalRise, CapitalStackers, HNW Lending, Invest & Fund, Kuflink, Lendwise, Loanpad, Proplend and Somo, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.