Loanpad offers a user-friendly, low-risk platform for investors eager to earn interest via shared, short-term property loans. A peer-to-peer platform, investors pay into one of two online lending accounts (Classic or Premium) that returns daily interest. Its two account options may also be designed as an ISA (for tax-free returns). Available for EU citizens with a UK Bank account.
Last updated: May 26. 2020
|Operating in:||United Kingdom|
|Requirement:||UK bank account & EU Address|
Office location in London
Table of Contents
Investor Introduction Video - How does Loanpad work?
Loanpad Pros & Cons
Characteristics of Loans
3.5% – 4.5%
1 – 60 days
Interest Covered Fund ✔
Minimum Investment ⇙
Direct Investment Structure ✔
Asset as Collateral ⇙
Loans on Loanpad
Loanpad offers loans to companies or individuals looking for short-term (1 to 18 months) property development, bridging or business financing. All loans are shared with established lending partners and supported by property. Property finance is available for borrowers from 6% per year, and applications are submitted online in less than ten minutes. Applications are reviewed with lending partners and a decision in principle is given within three days. There are some basic criteria for the loans: Maximum of 60% LTV, need the money for a minimum of 1 month and maximum 18 months, can pay monthly interest or eligible for retained interest and then there is an arrangement fee of 1% for the borrower.
All loans made with lenders money on Loanpad are shared with their lending partners, which are carefully selected established lenders in the United Kingdom. They are managing each loan with the oversight of the platform and take the responsibility of the more risky part of the loans, the so-called junior tranches. All partners must be invested with at least 25% of the loan and if a loan defaults, the lender’s money is repaid with interest before any lending partner gets their share. So having the oversight of this platform and its lending partners adds another layer of interest in checking the potential borrower’s ability to pay back to make sure the risk/reward is in place for all parts involved.
Purpose for borrowers on Loanpad
Interest Covered Fund on Loanpad
The Interest Covered Fund (ICF) on Loanpad is designed to protect and maintain daily interest payments to your Classic or Premium lending account. Every time it is necessary to use the ICF and thereby take out money from the fund to cover daily interest it is replaced and added to form the service fee charged to borrowers in default. This means whenever a borrower stops paying and defaults (lacking the payments required for the daily interest rate) the exact amount is then charged as a fee from the borrowers to ensure the fund is healthy and to encourage repaying loans on time. The ICF is designed to cover interest payments only and not the capital invested in loans. At the same time it is not a guarantee, but support to keep the daily interest flowing, so even though this mechanism is in place it is not sure they can cover all interest at all times. It is possible to find real-time details of the fund at any time when logged into your lending account.
What Happens If Loanpad Goes Bankrupt or Stop Operating?
There are two different types of investment structures in P2P investing:
- The direct structure means you are buying a claim against the borrower directly or through a fund that is separated from the platforms’ day-to-day operation and balance sheet, so no creditor has a claim on this if a platform bankruptcy occurs.
- The indirect structure means you obtain exposure to a loan by investing in a loan issued by a platform company to the loan originator.
Though it can be hard to understand what your money is placed in when you are just putting money into one of two different lending accounts the investment structure is direct. The loans behind these accounts are directly linked to the amounts put into accounts on Loanpad and the money spread across the entire portfolio of loans to ensure diversification and to keep simple for lenders. Details of every single loan on the platform are available to be downloaded and updated daily.
This means in case of bankruptcy the account holders still have a claim against the borrowers and the rights to the money will ultimately be the investors. As a part of the commitment to the FCA regulations, the platform has to take the necessary steps required to ensure that in case the platform stops operating, the loans continue to be managed and administrated as before. This is the so-called Wind-Down plan, which main focus is to ensure an executable plan is in place and that it considers cost implications for investors. As a result, the goal is to mitigate risk and knowing that it’s in place is important for investor comfort and safeguards that loans invested in will continue regardless of the existence of whoever is managing and administration the loans.
Read more about Loanpad’s Wind-Down plans in the FAQ: “What is Loanpad’s wind-down plan and how will I be protected in the event of a platform wind-down?“
It is not possible to choose which individual loan to invest in at Loanpad. As with any other platform, the borrowers are filtered and selected by the platform, yet on this one, the filtering of borrowers is more important for the platform because the returns of all their investors are ultimately depending on their entire loan portfolio and not of every investor own ability to selected good loans. The platform spreads all the money in the lending accounts across the entire portfolio of loans and allocates this every day. They do it this way to ensure diversification taking the entire responsibility of protecting your money and to keep things simple and easy for the lenders. At any time it is possible to download a copy of the details on every single loan issued by the platform.
Automatic Investing & Automatic Withdrawal
Automatic investing is available on Loanpad as the lending accounts pay out interest daily to your cash account you can choose to reinvest your cash balance to maximize the return of interest’s interest during a year. This works exactly the same as with the lending account, you are just telling the platform to put the interest earned on your cash account back into your lending accounts. Transfers to your Classic or Premium lending account happen in multiples of £10, so if you expect to be daily reinvesting with 5% yearly interest, you will need £73 000 in the Premium lending account.
However, it is still a nice feature to exploit interest’s interest on a return that is paid very often. The settings are found under ‘preferences’ when logged into Loanpad – and as a nice feature, this platform offers to automatically withdraw your cash balance once a month at a predefined desired day to your UK bank account.
Early Exit Option
As long as there is enough ‘available’ money in the system (either from new investors or repaid loans) you can move money from your lending accounts to your cash account according to the terms specified. For Classic Accounts with 4% interest, you should be able to withdraw instantly while Premium accounts with 5% interest have a 60-day withdrawal period. It is important to notice, that Loanpad can’t guarantee that you are able to move or release money from your lending accounts immediately, as there has to be ‘enough money in the system’. This means that there has to be enough money available from loan repayments and new investments.
Therefore, it can happen that there is a delay in moving and withdrawing money, so this can’t be treated like a normal bank account that happens to come with higher returns – it involves a different risk. As the saying goes: there is no free lunch on the financial markets. No returns come without risk and here, as with most other types of investment, the liquidity risk can happen in bad times.
Portfolio Accounts on Loanpad
Loanpad offers two different lending accounts that both are ISA eligible for tax-free returns and a basic cash account for transactions in and out of the platform. Both types of accounts are investment portfolios in their secured real estate loans designed for short term lending but secured as senior debt holders and with lower than usual LTV’s. The interest rates of both accounts are capped at either 4% on the Classic Account or 5% on the Premium Account.
Remember, the capital is at risk and not protected by the FSCS like regular bank accounts, this also underlines that past performance is not an indicator of future results. As interest rates are variable and subject to change, the capped interest rates can change for the better and for the worse, but will usually always follow the platforms expected risk/reward because of the described Interest Covered Fund mechanism.
The minimum investment is at an astonishing low £10 and the main difference on the two different lending accounts Classic & Premium is beside the interest rate, the expected withdrawal time. This is set as instant withdrawal on the Classic account which means that it should be possible to take your money out any time, while the Premium account has a 60 day withdrawal period. Here is an overview of the two different lending accounts:
- 4% Yearly interest rate, paid out daily
- Daily access
- Minimum investment amount: £10
- Maximum investment amount: £20,000
- Covered by the Interest Covered Fund
Nice to Know for Investors
Registering at Loanpad is very simple and easy to do. You must be 18 years of age, have a EU address and a bank account in the UK. When you click the signup button, you fill out your name, address, date of birth and so on. To keep things simple, the investment platform will do online ID and background checks and only ask you for documents if more information is necessary for the Know-Your-Costumer(KYC) and Anti Money Laundry financial authorities requirements.
Deposit & Withdrawal Process
Depositing funds to your investor account is done in three steps:
- Transfer money to your Loanpad account from your UK bank account with a traditional bank transfer.
- Your funds will be available for investment within the day of confirmed arrival (usually 1-3 banking days).
- After the funds are received and added to the account, you will receive an e-mail confirmation.
Withdrawing funds is very simple if you are already KYC validated. You just click the “withdraw funds”, enter the desired amount and wait for the 1 to 3 business days before the requested amount will be in your account. There is no minimum withdrawal restrictions and no further additional fees or commission for withdrawing the funds – except maybe from your bank. Remember, depending on their fee structure, your bank might charge fees for handling the transaction or exchanging currency.
Can I use online banking services such as Transferwise or Revolut?
This depends on your personal situation – it’s your responsibility to pay any tax you owe on interest you receive through Loanpad. We don’t deduct tax from your interest or any other money we pay to you.
The UK government guidance for individuals is that the interest received from peer-to-peer loans is taxable in the same way as any other interest received. Further details can be found in the UK government’s guidance on peer-to-peer lending.
If you have questions about paying tax, it’s best to get advice from an independent financial or tax advisor.
All of our accounts are available as innovative finance ISAs (IFISA), so if you’re eligible you could enjoy tax-free interest in this way.
Loanpad FAQ: “Do i have to pay tax on my interest?”
Is Loanpad only for UK Residents?
Is Loanpad Regulated?
|Total investments:||£13.2 million|
|Total capital loss to date:||£0|
|Total loan suspension to date:||£0|
|Classic account interest rate:||3.5%|
|Premium account interest rate:||4.5%|
Loanpad Bonus - Receive a £50 to £150 Bonus on your first investment
Loanpad has a referral program giving new investors a bonus on the amount invested after 365 days (first year).
The following bonuses are available:
If you invest £1,000 for 365 you will receive a £50 bonus.
If you invest £10,000 for 365 days, you will receive a £150 bonus.
Get the bonus by using this link to Register at Loanpad and start investing.
P2P Market Data is participating in this program and if you would like to support us while also receiving a £50 to £150 bonus yourself on your first investment at Loanpad, please use this link for signing up at Loanpad.
Please note that this overview may contain affiliate links. It means that a commission is earned if you decide to invest after using the link – of course without additional costs to you. The information on this site does not constitute investment advice and is solely to give you a simple and easy overview of the platform. Always conduct your own due diligence and consult your financial advisor before making any investment decisions.
* Historical return is not a guarantee of future return. The number is reported directly to us on mail and is the average overall rate on Loanpad as of the date of the first publish of this article (23.12.2019).