The person or business you lend money to might not be able to pay it back (this is called ‘defaulting’).
The higher the default rate on a P2P website, the higher the number of people or businesses that are unable to repay their loans.
Unlike bank and building society savings, the money you lend via a P2P website is not covered by the Financial Services Compensation Scheme.
But a number of P2P websites have contingency or provision funds, which are designed to pay out if a borrower defaults on their loan.
These provision funds vary widely from one site to another, so it’s important to know what’s covered if you’re thinking of becoming a lender.