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Tackling your debts

Can I include peer-to-peer debts on a debt solution?

Posted 16 February 2016 by Christine Walsh

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Peer-to-peer lending is on the increase, learn how to deal with the problem if you’ve got one of these loans and you’re struggling to repay it.

You may have seen in the news lately that lending in the peer-to-peer industry has doubled to £4.4billion. While this is good news for the industry, it could also mean that there are a few of you out there who may be wondering what happens if you have trouble repaying the loan that you took out using a peer-to-peer (P2P) platform. In this blog, we’re going to explore how this type of borrowing works and also what you can do if you find that you’re having trouble keeping up with your payments. 

 

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What is peer-to-peer lending?

Peer-to-peer lending is a system of lending and borrowing money that doesn’t rely on traditional lenders, like banks. It matches up people who are looking for a higher return on money they invest than traditional savings accounts currently offer, directly with people who want to borrow. If you borrow this way, the money you receive is funded directly by a group of people – rather than a big organisation. In the UK there are a number of firms that bring potential lenders and borrowers together in this way - some of the best known ones are Zopa, Ratesetter and Funding Circle.

Borrowers are drawn to this type of loan because the rates of interest charged can be lower than those offered from your average high street lenders. Flexible loan terms and no early repayment charges are also sometimes available and can be attractive prospects for borrowers. 

Whether you decide to apply for a loan with a traditional lender, or with a P2P firm, you will still be subject to credit checks and the rate of interest offered will vary depending on the results of those checks. As with any borrowing, you need to check the terms and conditions carefully before agreeing to anything. 

How are peer-to-peer firms regulated?

As of 1st April 2014, P2P firms became regulated in the same way that any other lender is, through the Financial Conduct Authority (FCA). 

The main aim of the FCA in regulating this part of the industry is to protect customers – under the rules these firms are obliged to lend responsibly to people that can afford to repay, treat customers as fairly as possible, identify vulnerable customers and make sure that the information they put out there is clear, fair and not misleading. 

So in terms of how protected you are as a consumer, there’s no difference between borrowing the P2P way or from a traditional lender. Having said that, not being able to manage your repayments can be a stressful and unpleasant experience, no matter who you got the loan from. So, let’s take a look at the options available if you’re having trouble paying back what you owe to a P2P firm. 

 

What can I do if I can’t pay back my peer-to-peer loan?

If you find that you’re having problems repaying your P2P loan and you have to miss one or two payments, pay late or pay in part, our advice is the same as it would be with any other lender – the sooner you tell them about it the better. 

If the loan defaults (normally this would happen if you missed between three to six payments) then some lenders will have late payments charges and the P2P firm may use a collections company to try and recover the money that you owe. This will involve receiving phone calls and letters and, and later down the line there could be possible legal action, like taking you to court and a CCJs (County Court Judgement) being made against you. Late, missing or partial payments, or defaults on this type of loan will have a negative effect on your credit history, as they would with personal loans from mainstream lenders, bringing your score down and possibly making it more difficult or more expensive to borrow in the future. 

However, it certainly doesn’t have to get to this stage. Early communication with your P2P firm is important, this way they know you have every intention of paying the money back when you are able to. 

A debt solution could help

As long as the loan you took out wasn’t secured, it’s possible that a debt solution could help you manage your P2P repayments and get back on an even financial keel. Debt Management Plans (DMPs) and Individual Voluntary Arrangements (IVAs) are solutions that, if they are suitable for you, allow you to lower your monthly payments to your unsecured lenders to an affordable rate. On a DMP, you would continue to make lower payments until the whole of the debt is paid off, whereas with an IVA you normally pay for a period of five-six years and then the remainder of your debts on the plan are written off. Both these plans would require your lenders – including the P2P lenders – to agree to the new lower payments. 

Alternatively, bankruptcy and Debt Relief Orders (DROs) are other ways out of unmanageable debt. These options are to cater for people who have unsecured debts they are struggling to put any money towards. A DRO allows you to suspend your payments altogether for a year, after which time, if your situation has not improved, the rest of the debts on the plan would be written off. With bankruptcy you are sometimes required to pay something towards your debts, although your Trustee (who oversees the bankruptcy) will only ask you to do so if they can see that you’re able to afford it. Bankruptcy, however, does normally mean that you have to sell any assets you have and put the money towards your debts, including your home, if you have one and there’s any equity in it. 

The options mentioned above are only available in England, Wales and Northern Ireland.  If you live in Scotland and you’re struggling with P2P repayments, or other forms of unsecured borrowing, then have a look at our Scottish solutions

We hope that’s helped if you’ve got P2P debts you’re worried about. If you’d like to chat to someone experienced in helping people manage their debts, just use one of the options to the left.

 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.