Proplend review

A middle ground between savings accounts and share trading, peer-to-peer investing with Proplend can be an innovative way of making your money go the extra mile.

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P2P platform Proplend allows you to lend your money to a range of businesses, choosing who you want to support and for how much. You’ll receive a fixed interest rate in return.

If you’re fed up with the low rates offered by savings account but refuse to go in full Wolf of Wall Street mode and try out share trading, Proplend can be a viable alternative. Let’s dig deeper.

What is Proplend?

Proplend is a platform that facilitates P2P investing and lending. It creates a direct relationship between borrowers (who pay interest on their loans) and lenders (who earn the interest instead). As there are no banks involved, P2P investing is normally more profitable than savings accounts.

Proplend lets you invest in a range of commercial loans, all secured against a property.

How does investing with Proplend work?

Here’s more or less what the process of setting up Proplend should look like for a prospective investor:

  • You open an account with Proplend. You do it online by completing a registration form. Once Proplend has verified your identity, you can access the account.
  • You fund the account. By sending a bank transfer from your current account.
  • You choose the loans you want to invest in. You can browse and choose them manually or activate Proplend’s “auto-lend” functionality, that does it for you automatically.
  • You make an offer for a loan and thus commit your money. Proplend offers standardised loan contracts that both you and the borrower will have to sign. Once a loan is fully funded, it officially starts.
  • You get paid a monthly interest. The rate will depend on a series of factors, including how risky the loan is. Proplend says that with a standard account rates will normally range from 5% to 12% per year (after fees but before tax). Interest is paid on the monthly anniversary date of when the loan was drawn down, and you can also choose to have it automatically sent into your current account at the beginning of each month.
  • Once the loan terms expire, you get your money back. Note that this doesn’t happen until the whole loan has been paid back by the borrower.

You don’t need to fund a whole loan by yourself. Proplend divides each loan into “tranches” of £1,000 each, and you can decide how many of them you want to fund.

Which investment options does Proplend offer?

At the very beginning, you’ll be asked to choose between three possible types of investment accounts:

  • Standard account. It’s unlimited, but you’ll have to pay taxes on what you earn.
  • ISA account. You can invest your annual ISA allowance (£20,000 for 2019/20) and earn tax-free interest. Proplend offers an easy-access ISA, which means you can withdraw money from and fund the account as often as you like, but only when the money isn’t invested (and thus isn’t earning any interest).
  • Pension. You can ask your pension provider to set up a Proplend account on your behalf and invest your pension through the platform.

You can hold multiple accounts with Proplend, so if you want to open both an ISA account to invest your allowance and a standard account to invest some extra savings, you can do that.

Which are the risks of investing with Proplend?

Proplend isn’t covered by the Financial Services Compensation Scheme, so your capital is at risk. Your money is only protected when you’re not lending it out (Proplend keeps it in a client account with Barclays).

When you invest your money, you can choose between three levels of risks, that depend on the LTV (loan-to-value ratio) of the mortgage you’re looking to fund: tranche A (0-50% LTV), tranche B (51-65% LTV) and tranche C (66-75% LTV). The higher the LTV, the higher the risk and thus the higher the interest rate you’ll receive.

All loans are secured. According to Proplend, “the platform announced its first defaulting loan in July 2019 – five years after launching. No investor has yet suffered any loss of capital or interest.” However, that doesn’t guarantee that it won’t happen in the future.

All in all, the level of risk is generally lower than with share trading (which can be very volatile), but investing with Proplend is still not as safe as keeping your money in a savings account.

Proplend fees and charges

Proplend charges a 10% fee on the interest you earn from borrowers. The fee is retained automatically when the interest is paid every month, so the money doesn’t even reach your account.

There are no other fees or charges for investors.

Pros and cons

Pros

  • Interest is fixed and the market is way less volatile than with share trading.
  • Better return than with a savings account.
  • You can quickly set up an account online.
  • You can choose between different levels of risk.

Cons

  • Your funds aren’t protected by the FSCS.
  • You can’t access your money easily when it’s invested.

The bottom line

Proplend’s P2P investing is easy to understand and set up, and can be a smart option for prospective investors who are willing to take some risks with their money but don’t want to go into share trading. If you want to give it a go, you should be prepared to invest for the medium-to-long term.

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