P2P Money Blog

There are several "reputable" websites now trying to publicise peer-to-peer lending.  These sites are showing a figure for "estimated return after bad debt".  Unfortunately it is not possible to calculate this figure unless you know the tax rate for the lender.  This is because due to the current - and we believe unfair - tax situation, income tax is applied before bad debt.  There is a campaign to change this, but as yet there has been no movement from the treasury.

If for example, a higher rate tax payer lends money at 10% AER.  Most sites charge a 1% fee, so this will bring their return down to 9%.  As a higher rate tax payer (without a consumer credit license) they have to pay a further 3.6% in income tax.  This reduces the return to 5.4%.  Now lets assume that there is an estimated 3% per annum bad debt.  The lenders net return - assuming bad debt comes it on estimate - is now down to only 2.4%.  The effective tax rate they have paid isn't 40%, it is actually 60%!

The current peer to peer lending rates are visible on the P2P money website.