P2P Lending: How And When You Can Access Your Money
This page was last updated on 16 August, 2017
This guide tells you how most P2P lending sites work when it comes to you exiting your loans. And for the most part getting your money back does work as well as you want it to.
But, firstly, please consider this:
There will be times when selling your loans to exit early takes longer than you hoped – possibly a lot longer. And during those times there's no guarantee you'll find someone to take the loans off you.
Especially in times of recessions and panics, it will be harder to get rid of your loans quickly and you might even have to take a loss if you need to sell them before the borrower repays, e.g. you might have to sell your loans for 95p in the pound – if the P2P lending site lets you sell at all under those circumstances.
You see, the natural fit for lending your money is to lend until the borrowers repay their loans. If you try to fight that timeframe by leaving early, you might not always win. No matter how good the P2P lending sites are that you use.
You can read a lot more about the difficulties you might face in both lending your money swiftly or getting it back early, as well as 10 strong ways to combat those problems, in 10 Ways To Get Your P2P Lending Money Back!
Getting your money back when using autolend
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Some P2P lending accounts spread your money across loans automatically or have similar “autobid” 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?”
That's a relatively short question with a long answer.
Usually it's dependent on when loans are repaid. You receive repayments every month that include some of your original loan as well as some interest. These loans are typically from one to five years, so those payments will occur within that time (excluding any bad debts still outstanding at the end).
Some borrowers will repay early, so you can expect to get at least some money back earlier than you expected.
Re-lending can extend how long you lend for
For most P2P lending accounts, partly due to early repayments, you can expect to receive most of your money back within a couple of years unless you choose to automatically re-lend any repayments and interest you receive.
If you do re-lend, it will extend how long you lend for, because those re-lent amounts could go into new loans of up to five years.
For example, if you've been lending for a month in a five-year account, and then you re-lend the first month's repayment, you might now lend for five years and one month. After two months, re-lending could extend your total lending time to five years' and two months. It depends on how long the loan is.
If you want to avoid a situation like this you could lend – and re-lend monthly – by using lending accounts that are for 3-5 years to begin with, but in about one year's time you could just lend in accounts of three years, and then in 2-3 years' time just lend in accounts that tie you in for even shorter periods.
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 with 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 bulk of the money back by that point.
Exiting your loans early – before they are repaid
Most P2P lending sites will also allow you to get your money back before the loans are repaid.
To get your money back before loans are repaid, the P2P lending site 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 that other lender. This is rather like how you sell shares on the stock market – your sell order is matched to a buy order elsewhere, automatically.
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 please heed the warning in between the gold lines at the top of this page: these are not savings accounts, so sometimes you might suffer huge delays in getting hold of at least some of your money.
Unlike just letting your loans be repaid naturally by the borrower, there are usually some costs and charges in selling your loans early to another lender 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 will likely have earned enough interest to cover the costs already.
Automated accounts usually have reserve funds set aside to cover expected losses, which means you can even, usually, exit loans that have gone bad, since the reserve fund will pay you any outstanding loan amounts – so long as it has enough cash in it to do so.
I think there's just one more type of automated account to talk about. This is rare, but there are some P2P lending accounts where the expected time you'll be lending for does not match the amount of time the borrower is borrowing for.
For example, Landbay* does 10-year mortgages to buy-to-let landlords, but lenders are offered three-year lending accounts.
Landbay's great qualities aside, this mismatch could become a potential cause of problems.
After three years, Landbay is due to pay lenders back, but this will depend on other lenders being available to take what's left of those 10-year mortgages off you. If they aren't, you will need to keep lending until your money can be matched to other lenders.
Getting your money back when you choose loans yourself
When you choose individual loans yourself, you lend in each loan until it is repaid. Loans could be repaid early and often are.
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 your loans on to other lenders.
You might be able to select individual loans to sell, or even sell just parts of the loans. Some sites will enable you to sell multiple loans automatically. Each P2P lending site offers different flexibility in this regard.
To sell loans early, expect to pay fees of up to 1%, normally. On top of that cost, you might typically get back a slightly different amount than your outstanding loan. This might be a little bit less, but it could also be a little bit more.
Sometimes, you might be able to sell your loans for a lot more than you paid, making a significant gain. (For tax tips on that, see How Is Peer-to-Peer Lending Taxed?)
At other times, if you really need your money before the loan is repaid by the borrower, you might have to sell for a loss at a lot less than the amount you have outstanding. This is especially likely during financial crises when people are scared of lending, or when lenders get the jitters about that specific P2P lending site you are using.
Sometimes – and again, especially likely during crises – you might find it difficult to sell your loans at all, if there are no lenders who want to buy them off you.
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:
- Go to the comparison table.
- Select the checkboxes on the right of the P2P lending products that interest you.
- Click the “Get more details” button at the top of the page.
Please lend across lots of P2P sites, not just one!
Worried about getting your money back? Read 10 Ways To Get Your P2P Lending Money Back!
*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 Landbay 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.