How it works

Peer-to-peer lending shouldn't be daunting. At Lending Works, we prioritise simplicity and take care of the details so you don't have to.

With investments, your capital is at risk.

About peer-to-peer (P2P) lending

Peer-to-peer lending (or "P2P") allows investors to lend money directly to other individuals via a P2P platform like Lending Works. By cutting out the bank in the middle, investors earn a healthy return from principal and interest payments while helping others achieve their goals. Borrowers benefit from flexible loans at competitive rates, typically used to finance home improvements, purchase a new car or consolidate some more expensive debt. You can read more about our borrowers on our statistics pages.

Lending Works manages the entire process from start to finish, from initial credit assessment, matching and allocation of loans to collecting repayments and distributing funds to investors.

  How it works

You can start investing from as little as £100. We'll split your investment into many individual 'chunks' which are then placed in a queue to lend directly to sensible people looking for a personal loan. You can read more about portfolio diversification on our risk management page.

Borrowers make monthly repayments on their loans, consisting of both principal (repayment of the amount borrowed) and interest, which are automatically credited to your Lending Works account. Depending on your investment goals, you can either reinvest repayments, so your interest earns interest too, or automatically withdraw straight to your bank account to provide an additional income - the choice is yours.

  How we manage risk

We've built an exceptional team, including highly experienced professionals in credit risk management, data science and analytics. Our team develops sophisticated credit models which ensure your money is only lent to creditworthy borrowers who can afford to repay their loans.

Your investment will also be spread across many different loans, which helps provide diversification and stability of returns.

One inevitable fact of lending is that sometimes borrowers will miss repayments, or default on their loans. That's why we set up the Lending Works Shield. The Shield consists of a contingency fund which is topped up by us, using a portion of any arrangement fee and interest paid by borrowers. If a borrower misses a payment, or defaults on their loan, the Shield steps in to make the payment on their behalf. Any money subsequently recovered goes back into the Shield.

We've built an experienced collections team to help collect missed payments and get borrowers back on track. The vast majority of our borrowers who miss a payment or two will go on to fully repay their loan. If a loan goes more than two payments down, we outsource collections to our trusted debt collection partner.

Read more about how we manage risk at Lending Works or check out our statistics pages for further information.

Peer-to-peer lending is an investment, which means your capital is at risk and returns aren’t guaranteed. It's also important to remember that the Financial Services Compensation Scheme (FSCS) doesn’t cover poor investment performance, just like with bonds or shares.

  Types of account

At Lending Works, we offer two different accounts: a Classic account and an Innovative Finance ISA (IFISA).

Our Classic account is a general investment account with no investment limit. Interest is subject to tax, although whether you'll need to pay any tax depends on your personal circumstances. See our Fees and tax section below for more information.

Our IFISA allows you to enjoy all the benefits of peer-to-peer lending inside a tax-free wrapper. You can invest up to £20,000 each tax year, and transfer across any existing ISA with no limit. Please note that your ISA allowance covers all types of ISAs (cash, stocks & shares and IFISAs) and the statutory tax-free ISA allowance can change from time to time.

Classic account

  • No investment limit
  • Interest subject to tax
  • Minimum initial investment of £100

Innovative Finance ISA account

  • Invest up to £20,000 each year
  • Transfer any existing ISA
  • Earn tax-free interest
  • Minimum initial investment £100

  Investment products

Once you've opened your Classic account or IFISA, you can choose between our two investment products: Flexible or Growth.

Our Flexible product tends to suit those who might need early access to their money, or are new to peer-to-peer lending, while our Growth product tends to suit those looking to maximise returns and investing for the long term. With both products, access is not guaranteed but is dependent on other investors being available to purchase your loans.

You can build a loan portfolio to suit your investment style and access requirements. Choose one product or mix and match. Both of our investment products are diversified across all loan terms, from 2 - 60 months, and are available tax-free within an ISA.

Flexible

  • Reinvest repayments or withdraw income
  • No fees for early access
  • Start investing with £100
  • 4.0% p.a. target return

Growth

  • Reinvest repayments or withdraw income
  • 0.5% fee for early access
  • Start investing with £100
  • 5.4% p.a. target return

  Accessing your money

Your money will be lent to borrowers for loan terms from 2 - 60 months. You'll receive monthly repayments which you can withdraw if you're looking to wind-down your account over time. You can set your account up to transfer repayments directly to your bank account, either weekly or monthly, to provide an additional income.

We understand that personal circumstances can change. If you need early access to your money while it's still on loan, you can sell loans to other investors to release funds. It's important to note that this is not guaranteed, as it depends on other investors being available to purchase your loans. However, under normal conditions, this process typically takes no more than a couple of days.

Selling loans in the Flexible product is completely free of charge, while fees apply for selling loans in the Growth product. You can read more about fees in our Fees and tax section below.

You won't be able to sell loans which are currently in arrears. Instead, you'll need to wait until those loans are up-to-date, or until they've been classed as a default - at which point you'll be reimbursed by the Lending Works Shield.

  Fees and tax

Fees

We do not charge any fees for investing. Instead, we charge an arrangement fee on each loan to cover our upfront costs (including data costs, underwriting costs and any commission payable to our partners) and earn a small spread (the difference between the rate of interest payable by the borrower and the rate receivable by investors like you) to cover the ongoing costs of servicing the loans.

You may incur fees if you need to sell loans to access your money before it's been repaid by borrowers. Selling loans in the Flexible product is completely free of charge, while we charge a 0.5% fee for selling loans in the Growth product. In addition, if the rates on your loans are lower than the current rates, your loans will be sold at a discount so the investors purchasing your loans receive what they're expecting.

Tax

Normally, interest earned from peer-to-peer lending is taxable, but whether or not you need to pay any tax depends on your personal circumstances.

You may not be required to declare your income if your total interest falls within the Personal Savings Allowance (£1,000 of interest each year for basic rate taxpayers and £500 for higher rate), and/or if your interest is earned within an Innovative Finance ISA.

If you do need to pay any tax, please note that we do not make any tax deductions from your account, so you'll need to declare your income to HMRC separately. If you don’t normally complete a Self Assessment Tax Return, you should let your local Tax Office know about your P2P interest so they can advise you. If you pay tax under Pay As You Earn (PAYE) your tax code will then normally be adjusted to collect the tax due on the interest you have earned.