P2P Lending: How And When You Can Access Your Money

This guide tells you how most P2P lending sites and IFISA providers work when it comes to you exiting your loans.

If you're instead interested in reading about the difficulties you might face in getting your money back early or how to combat that problem, read 10 Ways To Get Your P2P Lending Money Back!

Getting your money back when using auto-lend

Some P2P lending accounts and IFISAs spread your money across loans automatically or have similar “auto-bid” or “auto-lend” features.

When it comes to getting your money back from these sorts of accounts, a 4thWay user summed up the biggest question very nicely:

“Would I be able to withdraw my loan plus interest at the end of a set period like I would with a standard fixed term savings account, or is it dependent on when individual loans that have been made are repaid?”

Usually, it's dependent on when loans are repaid. You usually receive payments every month. That might be just interest or it might be interest as well as some of your actual loan coming back to you. Some loans are all repaid at the end of the loan term and sometimes the interest is all paid at the end too.

Loans are typically between six months and five years.

Quite a lot of borrowers repay early, so you can expect to get some money back earlier than you expected.

Re-lending can extend how long you lend for

For most lending accounts, partly due to early repayments made by the borrowers, you can expect to receive most of your money back within a couple of years.

That's unless you choose to automatically re-lend any repayments and interest you receive. If you do, it will extend how long you lend for, because those re-lent amounts could go into new loans.

For example, if you've been lending for one month in a five-year account, and then you re-lend the first month's repayment, you might now lend for a total of five years and one month. After two months, re-lending could extend your total lending time to five years' and two months.

If you want to reduce the impact of this situation, you could shift more money over time to lending accounts with shorter loans. Re-lending has the added advantage that it lowers your risks and can help to spread your money across even more borrowers.

If you don't want to switch to accounts that offer loans and lending over shorter periods, you could switch off re-lending 2-3 years before you want your money back. You can usually expect to have been paid the vast majority of your money back by that point.

Exiting your loans early – before they're repaid

Most P2P lending accounts and IFISAs will allow you to get some or all of your money back early, i.e. before the borrowers repay the loans.

To get your money back early, the P2P lending website automatically matches your loans to another lender who wants to lend at the same time you want to exit. That other lender takes your loans off you and you get repaid.

In other words, your loans are sold to another lender. This is rather like how you sell shares on the stock market – your sell order is matched to a buy order elsewhere, automatically. There are two key differences though. Firstly, on the stock market, you will sell for a lower or higher price than when you bought in, but this doesn't usually happen in peer-to-peer lending.

Secondly, when all is going smoothly, this trade in peer-to-peer lending typically takes a day or a week to go through. In the stock market, it's usually instantaneous, because there are far more people and businesses trading on it.

These options to return your money early are often called things like “easy access” or “rapid return”. So far, this has mostly worked incredibly smoothly, but these are not savings accounts, so sometimes you might suffer huge delays in getting hold of at least some of your money.

Early access costs

Unlike just letting your loans be repaid naturally by the borrower, there are usually some costs and charges in selling your loans early to other lenders in this way.

Typically these add up to between 0.5% and 1.5%, although so long as you've been lending for at least a few months you'll likely have earned enough interest to cover the costs already. You might also have to compensate the new lenders for any difference in interest rates between what you are earning what the current rate is on new loans.

Automated accounts sometimes have reserve funds set aside to cover expected losses, which means you could even  get your money back on loans that have gone bad. To enable this, the reserve fund will pay you any outstanding loan amounts – so long as it has enough cash in it to do so.

Getting your money back when you choose loans yourself

When you choose individual loans yourself, you lend in each loan until it's repaid. Borrowers could repay loans early, and often do.

Selling your loans before they're repaid by the borrower

If you want to leave early – before the borrower has repaid – you can usually sell individual loans of your choice to other lenders. You might also be able to make partial sales of individual loans.

Some lending websites enable you to sell multiple loans automatically.

To sell loans early, expect to pay fees of up to 1.5%, normally.

You might also sell your loan at a discount or for a premium, i.e. you get back less or more than the outstanding loan amount. Although not all P2P lending companies allow a different loan price.

Sometimes, you can sell your loans for a lot more than you paid, making a significant gain. (For an example of this in action, read The Safest 20% Returns In P2P Lending. For tax tips on selling loans for a profit, see How Is Peer-to-Peer Lending Taxed? )

Sometimes – and again, especially likely during crises but it can also happen in normal times – you might find it difficult to sell your loans at all, if there are no lenders who want to buy them off you. You might have to sit it out. This is more likely when you're not allowed to sell at a discount.

If the borrower is late on making payments or if the loan has gone bad, you usually can't sell these loans early. You have to wait and see what happens.

Which sites let you leave loans before they're repaid

You can see which P2P lending sites allow you to leave and what the costs are in Where Can You Buy Or Sell Existing Loans? (The automated accounts are in the separate table at the bottom of that page.)

You can also see more details about any features, such as automated buying and selling options, like this:

  1. Go to the comparison table.
  2. Select the checkboxes on the right of the P2P lending products that interest you.
  3. Click the “Get more details” button at the top of the page.

Articles and guides mentioned above

10 Ways To Get Your P2P Lending Money Back!

The Safest 20% Returns In P2P Lending.

How Is Peer-to-Peer Lending Taxed?

Where Can You Buy Or Sell Existing Loans?

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