P2P investors doubled their money over last 10 years
Peer-to-peer lending and other online direct lending has returned 7.3 per cent per year after costs and losses since the end of July 2014, according to the 4thWay P2P And Direct Lending Index (PADL).
By contrast, savers in cash ISAs have made just 1.77 per cent per year over the same 10-year period.
This means that in 10 years, lenders have turned £10,000 into £20,468, more than doubling their money. Meanwhile, savers have turned £10,000 into just £11,956 in cash ISAs.
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Furthermore, 4thWay’s PADL has revealed that over the past decade, cash ISA savers have failed to keep up with inflation, seeing a -16.9 per cent decline, whereas people lending money online have beaten inflation by 42.5 per cent. Both cash ISAs and online lending enable completely tax-free returns.
That said, the gap between the two has become closer with the rise in interest rates over the last two years. Online lending beat cash ISAs by +2.57 and +2.44 percentage points in 2023 and 2024, respectively, compared to peak years 2017 and 2020, when online lending outperformed cash ISAs by +6.93 and +6.82 percentage points.
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The constituents of the 4thWay PADL Index’s total lending volume is equal to half the size of the P2P lending market, at around £750m.
Among them are CrowdProperty with a 10.12 per cent lending rate, CapitalRise at 8.79 per cent and Kuflink at 8.72 per cent.
“While online property lending has stably paid out 6.5 per cent to 8.1 per cent per annum, even through terrible economic times, savings returns have averaged far less while being surprisingly more volatile, considering they are supposed to be lower risk,” said co-founder and managing director of 4thWay Neil Faulkner.
“High inflation saw savings rates leap in the past few years, whereas online lending rates had less room to grow, since they are more detached from the Bank of England base rate. However, online lending still remains a solid 2.5 percentage points higher.”
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Faulkner said savings and online lending are likely to widen again in 2025, as inflation is down two-thirds from its peak.
“Sensible money commentators have always said that peer-to-peer lending is not savings, it is investing. That applies to the risks – but also to the results,” he added.
“Savings play an essential role in household finances as an emergency reserve and for shorter-term needs, but the risk of your pot being able to buy you less over time is huge when you deposit much more than that at the bank. If you want to stably beat inflation in the vast majority of years, look into online lending.”
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