Savers give peer-to-peer lending thumbs upWebsites rated for satisfaction for first time

15 June 2013

peer-to-peer lending

People who've turned to peer-to-peer lenders in a bid to get a better rate on their savings have been given the the thumbs up by savers, new Which? research can reveal. 

For the first time, Which? members rated the three largest peer-to-peer lenders - Funding Circle, Zopa and RateSetter - for customer satisfaction, with all three receiving impressive scores. 

RateSetter and Zopa topped our table, with a customer satisfaction score of 65%, while Funding Circle scored 61%. With the government investing £55m in peer-to-peer lending sites and plans to regulate the sites in 2014, the sector looks likely to enjoy greater growth. 

What is peer-to-peer lending?

Peer-to-peer lending websites match up savers who are willing to lend with borrowers – either as individuals or small businesses.

Rates can be better than those offered by banks on even Best Rate cash Isas and Best Rate savings accounts – as high as 16% for savers, and as low as 5% for borrowers on a five-year loan.

However, high rates come with added risk, as peer-to-peer sites aren't covered by the Financial Services Compensation Scheme (FSCS), which means you might struggle to get your money back if a site goes bust.

Peer-to-peer sites rated

In 2012, just 2% of Which? members we surveyed had invested money in peer-to-peer lending sites, but a year later – as high street savings rates have continued to fall – that number has leapt to 9%.

The main reason why savers are turning to peer-to-peer sites is low interest rates, cited by 81% of the investors we surveyed.

Now, for the first time, Which? members have rated the UK’s three biggest peer-to-peer lending sites - Funding Circle, RateSetter and Zopa – to see if they feel they can offer a viable mainstream alternative to the banks in the future.

Peer-to-peer lending sites under the microscope
 Explanation of risks to saversEase of useSavings ratesCustomer score
Funding CirclepoorSatisfactoryGood61%

Table Notes

Customer scores are based on an April 2013 survey of 4,510 Which? members, of which 389 had used a peer-to-peer site to invest money in the last two years. The overall customer score is based on overall satisfaction with a site's service and whether users would recommend it to others. 

Peer-to-peer lending: the risks

By cutting out the middleman and not having the overheads of traditional banks, peer-to-peer sites can often offer more favourable rates both to lenders and borrowers who have struggled to get a loan elsewhere.

By being connected directly to someone who wants to borrow, the most immediate risk to a lender's capital is if a borrower fails to repay what’s been lent. Sites manage risk in different ways, and 81% of investors we surveyed believe they explain risks well.

Find out more about how the sites work in our guide to peer-to-peer lending.

Peer-to-peer sites – what to watch out for

There are a few things you need to watch out for if using peer-to-peer lending sites:

  • Sites often charge lenders an annual fee, either as a percentage of their total investment or the amount of interest earned. 
  • You need to factor in the potential for borrowers to default on a loan.
  • While borrowers are credit checked, generally the higher the potential returns, the higher the risk that they might not repay.
  • You must pay income tax on the growth you make, not the net amount you earn after bad debts and fees. 
  • So if you earned 6% in income, but only ended up with 4% after bad debts, you’d still have to pay income tax on the 6%.

Peer-to-peer sites you lend through will send an annual statement of interest earned, which you’ll need to declare through your self-assessment tax return.

The verdict on peer-to-peer lending

Which? members' experiences of peer-to-peer lending overall have been positive, with 81% saying they’ll continue to use their current provider.

Richard Lloyd, Which? executive director, said: 'Peer-to-peer lending has brought a new element of competition to the saving and loans market. 

'But further regulation is needed to offer better consumer protection, to ensure investors are made aware of potential risks and borrowers are subject to proper affordability assessments.

'Peer-to-peer lending is riskier than traditional savings accounts, so people need to do their homework, spread the risk and only use them as part of wider investment portfolio.'

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