Peer-to-peer lending websites rated by Which?How easy are peer-to-peer lending websites to use?

24 June 2012

Peer to peer lending protection

Lending through a P2P website will not give your savings FSCS protection

A Which? investigation into peer-to-peer lending websites has found significant differences in the way they operate, the rates of return you can expect to get and how easy they are to use.

What is peer-to-peer lending?

Peer-to-peer lending (also known as social lending) websites match up savers (who are willing to lend) with borrowers – either as individuals or small businesses – and can provide significantly better returns than you'll get from best rate cash Isas and best rate savings accounts at your bank.

This type of lending has really taken off in the UK. Three of the biggest peer-to-peer websites: Funding Circle, RateSetter and Zopa, have lent more than £250m of investors' money to borrowers so far. This comes after the government announced at the end of May that it's planning to pump up to £100m into alternative lending.

How do the websites compare?

We investigated Funding Circle, RateSetter and Zopa – the trio were responsible for more than 99% of peer-to-peer loans made in 2011 – and invested £100 in each one with a view to achieving a target net rate of 4% after fees and bad debt but before tax, to beat top instant-access accounts by 1%. Here's our experience:

Funding Circle

  • Established: August 2010
  • Number of members: 15,000
  • Minimum/maximum you can lend: £20 minimum, no maximum
  • Average rate of return for lenders: 5.7% after fees and bad debt
  • Average default rate: 0.9%
  • Lending term: 1 year min, 5 years max
  • Annual fee: 1% of amount lent
  • Can you withdraw funds early? 0.25% charge but option to add up to 3% premium to rate

How it works: Lending to businesses, not individuals, lenders can access information about them, including risk category from A+ (very low) to C (average), and ask questions before choosing who to lend to. 

The site also offers an autobid tool to lend automatically – you can filter by risk. A business must show it's been trading for at least two years, and demonstrate it can afford repayments. If a business misses payments, the site works with a collections agency on the lender’s behalf. If you’re investing to small businesses rather than individuals there is capital gains tax relief available for losses incurred when lending to businesses.

Our experience: Lending to individual businesses looked complicated to us, so we liked Funding Circle's autobid tool. Though you have less control, you can set individual rates for different risk categories, or set an average rate – the site indicates how quickly your loan offer is likely to be taken up. 

To achieve our target of 4%, we were able to set our rates at below what borrowers asked for on the day – 0.4% less for very-low-risk lending, and 0.5% less for low-risk lending.


  • Established: October 2010
  • Number of members: 120,000
  • Minimum/maximum you can lend: £10 minimum, no maximum
  • Average rate of return for lenders: 5.95% after fees and bad debt
  • Average default rate: 0.24%
  • Lending term: 1 month min, 5 years max
  • Annual fee: 10% of interest you receive
  • Can you withdraw funds early? 2 days' notice, but only with monthly instant-access account

How it works: RateSetter has four accounts – monthly instant access and one, three and five-year bonds. It aims to lend all of your money to one borrower.

 Instead of letting you choose a risk category, RateSetter assesses borrowers – those deemed higher risk pay higher fees to a central fund which compensates lenders if a borrower defaults. To date, all capital and interest has been repaid to all lenders.

Our experience: We found RateSetter's website the easiest to understand and use, as fees and bad debt are already included in the rates shown. We liked the live table, showing how many offers were accepted at a specific rate in the last 24 hours, the rates that other lenders have set, and the rates that borrowers will accept. 

We selected the instant-access account which, on the day we lent money, had a rate of 4% (matching our target). Setting a higher rate than is recommended can result in a longer wait.


  • Established: March 2005
  • Number of members: 500,000
  • Minimum/maximum you can lend: £10 minimum, no maximum
  • Average rate of return for lenders: 5.6% after charges and bad debt
  • Average default rate: 0.88%
  • Lending term: 2-3 years min, 4-5 years max
  • Annual fee: 1% of amount lent
  • Withdraw funds early? Yes, but you will incur a 1% charge

How it works: Lending categories range from A* (very low risk) to C (average risk), based on a borrower's credit score. There's also a young borrowers (aged 20 to 25) category. 

To reduce risk, your money is split into £10 chunks. While loans range from two to five years, monthly repayments mean you can use the auto top-up tool to recycle funds, set a new rate or withdraw cash. Missed payments are chased on your behalf.

Our experience: We felt the information about rates, risks and charges on the website wasn’t the easiest to follow. But once you’ve signed up and start the lending process it becomes clearer, with fees and bad debt listed on the page where you set your rate. 

That page also helpfully indicates how likely each lending offer is to be accepted – whether it’s too high, too low or about right. But you don’t have to accept this advice – to achieve our target of 4%, Zopa still let us set our rates 0.5% below what it suggested.

What are the risks of peer-to-peer lending?

Higher interest rates mean more risk. While many peer-to-peer lenders have ways of containing the impact on lenders if borrowers default, such as spreading each investor's money between numerous borrowers, it's worth remembering that peer-to-peer sites are not covered by the Financial Services Compensation Scheme, which means all or some of your money could be at risk if the lending company goes bust. 

They are licensed by the Office of Fair Trading for lending activities, but with peer-to-peer lending you don't have any statutory rights, nor can lenders complain to the Financial Ombudsman Service. We felt all three websites we investigated did not display their complaints procedure to consumers very well.

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