Peer to Peer Loans: What UK Consumers Should Know

Updated
Oct 3, 2025 6:13 PM
Written by Nathan Cafearo
Peer to peer loans offer UK consumers alternative borrowing options, with potential cost savings and unique risks. This guide explains the basics, advantages, risks, and how to get started safely.

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Understanding Peer to Peer Loans in the UK

Peer to peer (P2P) loans have emerged as a compelling alternative to traditional bank lending, offering borrowers and investors a direct route to credit and returns. But how do P2P loans work, and are they right for you?

Who Should Consider Peer to Peer Loans?

P2P loans may appeal to UK consumers seeking loans outside of high street banks, especially those with good credit histories or those looking for competitive rates. They also attract individuals interested in investing through lending to others. If you value transparency, flexibility, and digital-first solutions, P2P lending could fit your needs.

Key Concepts and Terminology

P2P Lending Defined: Peer to peer lending connects individual borrowers with lenders via online platforms, bypassing banks. Borrowers apply for loans, while investors fund these loans, earning interest as repayments are made.

Platform: The website or app facilitating matches between borrowers and lenders. Popular UK platforms include Zopa, Funding Circle, and RateSetter.

APR (Annual Percentage Rate): The cost of borrowing, including interest and fees, expressed as an annual rate. Comparing APRs helps you assess offers fairly.

Credit Risk: The possibility that a borrower will not repay. P2P platforms assess creditworthiness, but risk remains.

Provision Fund: Some platforms maintain a reserve to cover missed payments, though this does not guarantee repayment.

FCA Regulation: Most UK P2P platforms are regulated by the Financial Conduct Authority, providing some consumer protections.

Exploring Your Peer to Peer Loan Options

P2P platforms offer various loan types:

  • Personal Loans: For consolidating debt, home improvements, or major purchases. Typical amounts range from £1,000 to £25,000, with repayment terms of 1–5 years.

  • Business Loans: Small businesses may access finance for growth, expansion, or working capital. Loans often range up to £500,000.

  • Secured vs. Unsecured: Most P2P loans are unsecured, but some providers may offer secured options requiring collateral.

  • Investment Opportunities: Individuals can also become lenders, choosing the level of risk and potential return by selecting loan segments to fund.

Each platform sets its own eligibility criteria, interest rates, and features. Some focus on quick approval and flexible repayment, while others prioritise lower risk or higher returns for lenders.

Costs, Risks, and Returns

Costs to Borrowers:

  • Interest rates vary widely by credit score and platform, often between 3% and 30% APR.

  • Some platforms charge arrangement or early repayment fees. Always check the representative APR.

Risks to Lenders:

  • Borrower default is the main risk. While provision funds may cover some losses, they are not a guarantee.

  • P2P loans are not covered by the Financial Services Compensation Scheme (FSCS).

Returns for Investors:

  • Average returns typically range from 3%–7% per year, but depend on the risk profile of loans funded.

  • Diversifying across multiple loans can help manage risk.

Eligibility and Requirements

For borrowers:

  • UK resident, aged 18+ (sometimes 21+)

  • Proof of income and identity

  • Good credit history (platforms may accept some with lower scores, but rates will be higher)

  • Bank account

For lenders:

  • UK resident, aged 18+

  • Meet platform’s minimum investment (often £10–£100)

  • Understand the risks involved

Platform criteria vary, so always check specific requirements before applying or investing.

How Peer to Peer Loans Work: Step-by-Step

  1. Register with a P2P lending platform

  2. Complete identity and credit checks

  3. Submit a loan application (for borrowers)

  4. Receive a loan offer and review terms

  5. Investors select loans to fund

  6. Funds are transferred to the borrower

  7. Borrower makes monthly repayments

  8. Repayments (plus interest) are distributed to investors

Pros and Cons of Peer to Peer Loans

Pros:

  • Potentially lower interest rates for borrowers

  • Quick online applications and decisions

  • Flexible loan amounts and repayment terms

  • Investors can earn higher returns than savings accounts

Cons:

  • Risk of losing money for investors

  • Not protected by FSCS

  • Rates may be higher for poor credit

  • Limited recourse if platform fails

Consider your risk tolerance and financial goals before proceeding.

Things to Watch Out For Before Deciding

Review the platform’s regulatory status, fee structure, and customer reviews. Check for transparency in how rates are set. Understand the risks, including the lack of FSCS protection and the possibility of losing your investment if loans default or the platform fails. Always read the small print and never borrow more than you can afford to repay.

Alternatives to Peer to Peer Loans

  • Traditional Bank Loans: Often offer lower rates for strong credit profiles, plus FSCS protection.

  • Credit Unions: Community-based, may offer competitive rates and flexible terms.

  • Credit Cards: Useful for short-term needs, but rates can be high if not paid in full.

  • Overdrafts: Offer flexibility, but can be costly over time.

  • Guarantor Loans: May help those with limited or poor credit access funds.

Assess your needs and compare all available options before committing.

Frequently Asked Questions

Q: Are peer to peer loans safe?
A: While regulated platforms offer some protections, P2P lending carries default risk and is not covered by FSCS.

Q: How quickly can I receive funds?
A: Many platforms approve and fund loans within 1–3 working days, but times vary.

Q: What credit score do I need?
A: Most platforms require fair to good credit. Lower scores may result in higher interest rates or rejection.

Q: Can I repay early?
A: Some platforms allow early repayment without penalty, but others may charge fees. Check terms before applying.

Q: How much can I borrow?
A: Personal loans typically range from £1,000 to £25,000, depending on your credit and the platform.

Q: What happens if a borrower misses payments?
A: The platform may use a provision fund or pursue collections. Investors may lose part or all of their investment on those loans.

Next Steps

If you’re considering a peer to peer loan, compare platforms carefully, review their terms and transparency, and ensure you meet eligibility criteria. For investors, diversify your portfolio and only invest what you can afford to lose. For borrowers, assess your ability to repay and consider alternatives.

Disclaimer

This article is for informational purposes only and does not constitute financial advice. Peer to peer lending involves risks, and you should seek independent advice before making borrowing or investment decisions. Terms and availability may change.

I am a business

Looking to offer finance options to my customers

Find out more

Apply for a loan

I'd like to apply for a personal loan

Apply now
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