10 Ways To Get Your P2P Lending Money Back!
This page was last updated on 27 June, 2019
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”.
To put it mildly, it's 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 RateSetter*, Assetz Capital* and a few others that lenders have typically been receiving their money back in seconds or minutes are surely true. But it makes lenders across the industry complacent.
Less speedy repayments in some recent years have slammed home to some lenders that P2P lending accounts are indeed investment accounts and not savings accounts.
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:
Buying loans on Zopa
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
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.
Selling loans on FundingSecure
A growing theme – a growing realisation among lenders – is that for certain kinds of lending, especially lending against assets or very short-term property loans, a high proportion of loans end up falling very late or even going bad. Since these loans are secured against property and possessions, lenders can expect recovery of bad debt to be high, but it can take many months or years.
Buying on Growth Street
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 MarketInvoice
At time of writing, MarketInvoice‘s own statistics show 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 on Lending Works
Going back a bit further, 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.
Buying on Landbay
A while back, for many months, Landbay* released no new loans, and we get the sense there was probably a period where lenders were waiting to get their money lent out. Landbay took steps to stop the glut from continuing.
Selling on Funding Circle
A user reported to us delays of 45 days to sell loan parts on Funding Circle.
Why buying and selling won't always be speedy
As you can see, of the recent examples that we could think of, more of them are problems buying loans than selling. So exiting early has been less of a problem so far. Most of the difficulties have been in getting all your money out on loan as fast as you want to (buying loans).
But you need to understand that delays are part-and-parcel of P2P lending at times and – above all – the delays will sometimes be far longer than those experienced so far:
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 the delays cost you and how long delays might last
We'll look at delays in selling your loans early first…
Because 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.
Turning to the cost to you when your loan sales are delayed…
In extreme situations, delays in getting all your money lent out could last a very long time.
If, over the course of a year you get frustrated, constantly finding it difficult to keep your money out on loan and earning interest, you could simply move some or all of your cash elsewhere.
What would you lose during the course of that year though? We'll give you a few examples.
Let's say you were to experience a regular three-week delay every single time you lend or re-lend through RateSetter's 5-Year lending account, which mostly does personal loans. This would reduce the interest you earn from around 5.5% to closer to 4% or 4.5%. That's assuming you choose to re-lend all the interest and repayments you receive. Otherwise it'll just go down to about 5.3%.
The situation would be similar at other websites that pay similar amounts, where the loans are one to five years, and where you usually get paid both interest and some of your money back every month.
Contrast this with Landbay*, which does interest-only mortgages to landlords. Here the drop in your earnings is far less, because you only have to re-lend interest every month and you don't have to constantly re-lend repayments of your actual loan. Your overall interest earned would therefore not be impacted very much at all.
LendingCrowd‘s* Self-Select Account has small business loans. These are mostly repayment loans and the target interest rate is over 7%. With the same three-week delay every month in re-lending, you might drop up to 2% in interest here, taking your gains for the year to about 5%-5.5%. The higher the interest rate, the greater the drop in interest earned from any lending delays.
Just to be clear, at time of writing, RateSetter and LendingCrowd haven't had these problems and, while Landbay lenders might once have had some issues getting their money lent out, there is no indication that it would have been a delay of three weeks every month. The above examples are purely hypothetical.
What is the cost of delays in lending your money?
Loss of interest due to delays in lending 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”. 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 slow 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), Landbay* (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 RateSetter* (read review), 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). RateSetter's 1-Year Lending account also aligns your lending into shorter-term loans.
But try and avoid the P2P sites that offer short loans but usually roll them over into new ones. FundingSecure (read review), for example, nominally does six-month loans, but borrowers are usually allowed to keep borrowing for another six months, indefinitely, so long as it pays the interest. And they often do. So you might not be able to get your money back if no other FundingSecure lenders will buy your loans at the end of the term.
And also exclude 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, 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. This 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 Growth Street* (read review), CapitalRise* (read review) and HNW Lending*.
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), BridgeCrowd* 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*, FundingSecure, 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 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 experts and journalists 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 already show dozens of P2P lending companies in our accurate comparison tables and we keep adding more as soon as they provide us with enough details. We receive compensation from ArchOver, Assetz Capital, The Bridgecrowd, CapitalRise, CapitalStackers, Crowd2Fund, Growth Street, HNW Lending, Landbay, LendingCrowd, Lending Works, Proplend, RateSetter and Relendex, 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.