Peer to peer lending is a fast-growing financial technology attracting new investors. A number of investors are earning high returns through p2p loans, but now, with the changing trends in the market, investors are concerned about the future of p2p lending. In addition, different negative stories of the financial landscape, including p2p lending, make investors think about whether they should continue investing in p2p lending or not. To help you out in this situation, we will describe why you should be optimistic about p2p lending.
Potential Of High-Quality Loans
Due to the coronavirus pandemic, there was a near-global lockdown, resulting in many small and medium-sized companies closing, forcing construction workers to close their work, and causing many families to cut their spending. These families, businesses, and property developers need quick access to funds. And it is going to happen that small and medium-sized business lending, property back loans to property investors, and consumer p2p lending from the UK’s peer to peer lending market. There is a great potential for high-quality p2p loans in the future because there are high-quality borrowers who are left out of pocket through no mistake of their own.
Better Government Relations
Historically, the peer-to-peer lending sector has had to fight a lot of cases to get the UK government’s approval. There are only a handful of platforms that are offering funds through the government-backed British Business Bank scheme. Moreover, business loans are difficult to access through traditional banks and financial institutions. Meanwhile, the UK government repeatedly refuses to weigh on regulatory issues related to p2p lending, and they refer all these queries to the Financial Conduct Authority (FCA).
But now, the relationship between p2p lenders and the government is on the edge of a significant change. With the increasing demand for SME loans, the government has created a range of new lending schemes, such as the Coronavirus Business Interruption Loan Scheme (CBILS). P2p lenders can participate in such schemes, and it is an excellent opportunity for them to prove their value at the national level.
Investors’ Attraction Towards IFISA
The pandemic not only impacted the borrowing, but investors are also struggling with the low-interest rate from the savings accounts and unprecedented volatility of the stock market. Therefore, there has never been a greater need for an investment option that can offer reliable and high returns within a tax-free wrapper. Innovative Finance ISA (IFISA) can be a perfect solution for investors in present situations. As a result, more and more investors are investing in IFISA to get inflation-beating results. Through IFISA, you can invest all or part of your annual allowance in p2p loans and can earn tax-free interest. However, be mindful that you can open only one IFISA account each tax year and also, there are some limitations on how much interest you can earn tax-free.
Over the past few months, there have been some rays of hope among the pandemic-centric news that peer to peer lending platforms have been leading the charge. Many leading p2p platforms have created new strategies to provide flexibility to the borrowers, such as if the borrowers find it difficult to repay the loan, they can freeze their payments for some time. It is one thing that makes p2p lending different from banks. P2p lenders show compassion to the borrowers and respond quickly to changing economic situations.
Chance To Prove Itself In A Downturn
One significant criticism against the p2p lending sector is that it lacks a track record. Financial analysts and experts have repeatedly pointed out that p2p platforms have to prove that they can survive in an economic downturn. Now due to the pandemic, there is a global recession, and p2p lending has a chance to show that it is a model that can adapt and evolve in any economic situation.
The social benefits and financial inclusions of peer to peer lending UK are now more critical than ever. P2p platforms now have a chance to show borrowers and investors how they can help and what they can do.