How does peer-to-peer lending work?

The process of peer-to-peer (P2P) lending is carried out through an online platform that matches borrowers with lenders, and vice versa. Some P2P platforms allow you to choose who you lend to, while others will allocate your investment on your behalf. 


As an investor, you will be required to select the interest rate you would like, your risk profile, preferred term length and your investment amount after registering on the platform. 

In some cases, you will then be matched with a borrower (this is dependent upon the provider and the purpose of the P2P loan, i.e. consumer, business or property) but before the investment is made you will have to complete an appropriateness test - to ensure you have the knowledge and experience necessary for this type of investment - and have your identity verified via a Know Your Customer (KYC) and Anti-Money Laundering (AML) check.

Once this process is complete and the investment has been made, the platform will provide the borrower with the funding from the lender. Borrowers will then make repayments to the platform at regular intervals, and depending on both the platform’s options and the lender’s choices, repayments can be made to the investor throughout the duration of the investment, or rolled up and paid at the end of the term.

If you’re holding your P2P loan in an Innovative Finance ISA (IFISA), any returns you receive will be completely tax-free. 

It’s important to note that the above is a generalised overview of the P2P lending process. This process will vary on a platform-to-platform basis, so it’s advisable to research your preferred providers specific procedure before deciding to invest. 



CARLTON Bonds are an IFISA provider specialising in fixed term property bonds.

Against a backdrop of low interest rates and a volatile stock market, the IFISA can provide an attractive investment opportunity for experienced investors. 

With the ability to hold peer-to-peer loans and debt-based securities, IFISA investments have the potential to generate higher rates of return than more traditional investment routes for investors with a greater appetite for risk.

To find out more, download our free IFISA guide.

The Innovative Finance ISA Guide