If you have managed your finances carefully throughout your life, and you have made the sacrifices required to save for your retirement, you may be being penalised by incredibly low interest rates.
Through no fault of your own, the money you have set aside throughout your life may be depreciating – a result of the rate of inflation being higher than most interest rates being offered by traditional savings accounts. However, instead of watching the value of your savings being eroded, peer to peer lending could be a more effective use of your capital.
How does Peer to Peer lending work?
If you want your capital to earn a far greater rates of interest than those being offered by the savings accounts of major banks, you can lend money directly to consumers throughout the UK. Using a leading peer to peer lending service, you can select which applicants best suit your financial objectives and risk tolerance. In most cases, you can lend up to 10 percent of the total loan amount requested by a borrower, and you receive monthly repayments and interest in the same way a bank would.
The peer to peer lending service will perform stringent credit checks on all applicants, and they will usually assign a credit rating to each potential borrower. However, they will reject applications from people with poor credit histories or those who may struggle to keep up with the repayments. The processes and systems employed by the UKs leading peer to peer lenders are so advanced and efficient that the average default rate is significantly lower than the high street banks default rates.
What are the advantages of saving for retirement in this way?
The clear advantage of lending via a peer to peer scheme involves the interest your capital can earn. Current rates associated with savings accounts are significantly less that 1 percent, which means your savings could be – in effect – getting smaller, year after year.
However, with rates of between 3 and 10 percent achievable through lending in this way, you can grow your savings for a more lucrative retirement. You can also spread the risk involved in lending. By lending small amounts to several borrowers, you can avoid losing significant amounts of your savings should a borrower default on a loan. And you can earn a regular income by asking for interest to be paid on a monthly basis.
What are the potential drawbacks of lending in this way?
Unlike savings account with UK banks, there is no state protection for money lenders who use peer to peer services. The Financial Services Compensation Scheme (FSCS) guarantees up to £85,000 of a saver’s capital – but only if it is held in a bank or building society. The cost of living and the continuing volatility in the financial markets means saving for your retirement is more important than ever.
With so many creditworthy consumers looking for personal loans in the UK, you can use that demand as a viable alternative to the low interest rates being offered by high street savings accounts. Offering peer to peer loans to ordinary consumers in the UK can make your money work harder, and that could secure you a more comfortable retirement.