Peer to peer lending has been around a while now and last year we reported how borrowers were turning to companies such as Zopa because they were fed up with adding to the banks bonus funds while the lenders – the people adding their savings into the money pot – were fed up with watching their money make next to nothing in interest while (you guessed it) the banks continued to pay themselves huge bonuses despite bringing the country to its knees.
Another peer to peer lending company has sprung up recently but while Zopa offer 3 and 5 year loans at extremely competitive rates, The Lending Well is targeting the payday loan sector and is charging its borrowers 1% per day.
£30 for a £100 loan over 30 days is not excessive for a payday loan (although around double what QuickQuid will charge you) and the moral issue of using your spare cash to fund payday loans is for each potential investor to consider.
Before getting to that stage though you might want to question why your money is being loaned out with such high interest rates while your return is just 12% per year?
It’s not 12% of what you put into The Lending Well war chest either, it’s 12% of any of your money that’s sat in the chest that actually gets used to fund a payday loan. Oh and by the way, if the borrower defaults, you lose out.
It looks like The Lending Well missed a great chance to set itself apart from the crowd by providing payday loans much cheaper than those offered by their competitors despite the fact that peer to peer lending means they take very little risk.
By providing emergency loans at the best rates available and taking the higher moral ground they would have cleaned up in the payday loan market. They would also have found a lot more people wanting to pour their money into peer to peer lending with them thanks to all the publicity having the lowest charges would have brought them.
Not to mention the feel good factor the lender would get knowing his money is being used to help people in dire financial straits at less than half the cost of companies supposedly cashing in on peoples desperation.
Of course, 12% is a great return on your investment in the current climate (providing they can provide enough borrowers) and those with no qualms about how their money is to be used will have probably already jumped right on in but this particular reporter would want to know why The Lending Well is charging such high interest rates, letting me take all the risk and then only rewarding me with a small percentage of the profits.
Peer to peer lending is set to grow in popularity but financially I would be looking for a fairer split of the profit and morally I would prefer to put my money into a company who aren’t simply looking to ‘cash in’ on the current financial climate.