Risk summary for P2P agreements or P2P portfolios

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose the money you invest

  • Many peer-to-peer (P2P) loans are made to borrowers who can’t borrow money from traditional lenders such as banks. These borrowers have a higher risk of not paying you back.

  • Advertised rates of return aren’t guaranteed. If a borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money.

  • These investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.

2. You are unlikely to get your money back quickly

  • Some P2P loans last for several years. You should be prepared to wait for your money to be returned even if the borrower repays on time.

  • Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’, but there is no guarantee you will be able to find someone willing to buy.

  • Even if your agreement is advertised as affording early access to your money, you will only get your money early if someone else wants to buy your loan(s). If no one wants to buy, it could take longer to get your money back.

3. Don’t put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

  • A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

4. The P2P platform could fail

  • If the platform fails, it may be impossible for you to collect money on your loan. It could take years to get your money back, or you may not get it back at all. Even if the platform has plans in place to prevent this, they may not work in a disorderly failure.

5. You are unlikely to be protected if something goes wrong

  • The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans. You may be able to claim if you received regulated advice to invest in P2P, and the adviser has since failed. Try the FSCS investment protection checker here.

  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here. For further information about peer-to-peer lending (loan-based crowdfunding), visit the FCA’s website here.

AutoLend: A popular Feature

Interview 15 Sept 2022
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Melissa Turnbull, Operations Manager at BLEND, explains what AutoLend is

AutoLend is one of our most popular features at Blend. It is used by many of our investors to ensure they don’t miss the chance to lend on our loans. For those readers who are yet to take the plunge with AutoLend, this blog features an interview with Melissa Turnbull, Operations Manager at Blend, where she explains what AutoLend is and why investors decide to use it.

 

Question: AutoLend is one of Blend’s most popular features for investors. Tell us what it is.

Melissa: That’s absolutely right. A large number of our investors currently use AutoLend. AutoLend is a feature of the Blend platform that allows investors make automatic investments in line with their criteria, such as interest rate and loan maturity. The feature allows investors choose a fixed amount to lend, letting them spread their available cash across multiple loans.

 

Question: So, effectively one of the reasons investors use AutoLend is for portfolio diversification purposes?

Melissa: Yes, that’s right. If we consider that an investor has £100,000 available to invest through the Blend platform, AutoLend allows that investor to spread his or her investment across multiple loans in multiples of £1,000. So, in this example, the investor would be able to spread his or her investments across 100 loans by investing £1,000 on each loan or across 10 loans by investing £10,000 on each loan. So, AutoLend allows investors to diversify their portfolio automatically.

Question: And how does AutoLend work in practise?

Melissa: In practise, AutoLend works like a queue. AutoLend are all placed in a queue and the queue works on a first come first served basis. If a loan is oversubscribed, priority will be given to lenders who first switched on their AutoLend. The size of the AutoLend queue is constantly changing because there are investors who join and leave the queue continually.

 

Question: How can investors activate their AutoLend?

Melissa: The Blend platform is very user-friendly and activating AutoLend consists of a few very simple steps. Investors can activate AutoLend by following these steps:

 

·       Log into your Blend account by using your login credentials.

·       Go to your Dashboard. From there, click on AutoLend and enter the amount you wish to invest per loan, in multiples of £1,000. Select the other parameters for your investment. These are the maximum or minimum expected interest rate and loan term that you would be happy with.

·       Click on ‘Turn ON’ where you will then be prompted to enter your password. This is the same as your login password.

·       AutoLend will automatically lend on the next available loan.

 

Question: Can investors activate and deactivate their AutoLend whenever they want?

Melissa: Yes, absolutely. Investors can activate and deactivate their AutoLend at any point in time. If investors deactivate their AutoLend, they will be removed from the AutoLend queue. If they later decide to activate their AutoLend again, they will re-join at the back of the queue. However, investors need to ensure there are always sufficient funds on their account. Otherwise, their AutoLend will be automatically deactivated, and they will be removed from the AutoLend queue if the balance on their account falls below their chosen AutoLend amount.

 

Question: Can investors change their AutoLend parameters and criteria once initially set?

Melissa: Yes, investors can change their AutoLend parameters and criteria at any point in time, but if they change their chosen AutoLend amount, their AutoLend will be automatically deactivated. In that case, they will need to reactivate their AutoLend manually and they will re-join at the back of the queue.

 

Question: Is there any fee to using AutoLend?

Melissa: No, the AutoLend feature is free to use and there are no charges for investors to lend through the Blend platform. The only time when a lender may be charged a fee is if they make use of the Secondary Market in order to sell part of a loan prior to its maturity.

 

Question: Can investors know how long it will take for their funds to be deployed through AutoLend?

Melissa: Unfortunately, no. The reason for this is that each person in the AutoLend queue has a different set of criteria and therefore their funds will be deployed accordingly. So, it is not possible to know how long it will take for each person’s funds to be deployed. Having said that, we continue to grow our lending team by hiring the best in the industry and aim to increase our pipeline of loans to ensure all our investors are able to deploy their funds in a timely manner.

 

Question: Is there anything else that investors need to know about using AutoLend?

Melissa: Investing through the Blend AutoLend platform is subject to the same rules, risks, and regulations as investing manually. Therefore, investors must know that their capital is at risk and that lending through an electronic platform is not covered by the Financial Services Compensation Scheme (FSCS). Aside from that disclaimer, I would just like to reiterate that AutoLend is a very popular feature at Blend and allows investors to diversify their investment portfolio while ensuring they don’t miss the chance to invest on our loans.

Melissa Turnbull is an Operations Manager at Blend based in London.

To find out more, please visit www.blendnetwork.com or email Melissa on [email protected]

BLEND Loan Network Limited is authorised and regulated by the Financial Conduct Authority (Reg No: 913456).

BLEND Loan Network Limited is registered in England and Wales. Registered office: Evelyn House, 142 New Cavendish Street, London W1W 6YF.

Don’t Invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more.

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