What are the key risks?
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Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
1. You could lose the money you invest
Many peer-to-peer (P2P) loans are made to borrowers who can’t borrow money from traditional lenders such as banks. These borrowers have a higher risk of not paying you back.
Advertised rates of return aren’t guaranteed. If a borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money.
These investments can be held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.
2. You are unlikely to get your money back quickly
Some P2P loans last for several years. You should be prepared to wait for your money to be returned even if the borrower repays on time.
Some platforms may give you the opportunity to sell your investment early through a ‘secondary market’, but there is no guarantee you will be able to find someone willing to buy.
Even if your agreement is advertised as affording early access to your money, you will only get your money early if someone else wants to buy your loan(s). If no one wants to buy, it could take longer to get your money back.
3. Don’t put all your eggs in one basket
Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
4. The P2P platform could fail
If the platform fails, it may be impossible for you to collect money on your loan. It could take years to get your money back, or you may not get it back at all. Even if the platform has plans in place to prevent this, they may not work in a disorderly failure.
5. You are unlikely to be protected if something goes wrong
The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans. You may be able to claim if you received regulated advice to invest in P2P, and the adviser has since failed. Try the FSCS investment protection checker here.
Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here.
For further information about peer-to-peer lending (loan-based crowdfunding), visit the FCA’s website here.
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The Financial Services Compensation Scheme (FSCS) is the UK's statutory compensation fund of last resort for financial firms, sometimes referred to as deposit insurance. StepLadder is not covered by the FSCS because we are a peer-to-peer platform operator, not a savings scheme. If you look at other Peer to Peer lenders you'll see that they are also not covered by the FSCS. We are however an appointed representative of More Lending Solutions Limited which is authorised and regulated by the Financial Conduct Authority (reference number: 702503). You can find us on the FCA register here - Our firm reference number is 783003.
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In the early days of setting up StepLadder this was one of the questions we were most often asked! But guess what, a) the Financial Conduct Authority do not put Ponzi schemes on their register and if we were we'd have been closed down by now or you'd have read about it in the press!
Your capital is at risk
Please see below some of the relevant risks involved with StepLadder’s Peer-to-Peer model. You should ensure that you read all relevant literature for this product before participating in a Circle.
Credit Risk
Stepladder’s business model is based on Peer to Peer Loans and the repayment of those loans is not a certainty. You may not receive all your capital back.
Liquidity Risk
A peer to peer loan made through our platform is illiquid – you are unable to transfer this to a third
party and you are unable to withdraw from your commitment to continue providing the monthly
amount without StepLadder’s permission.
Borrowing Risk
Once you join a Circle and make the first loan you are committed to that Circle for the period of the
loan. This applies even where you have already been drawn to borrow money. You should consider if you will be able to continue to meet payments under this agreement for the duration.
If you are drawn early and obtain a mortgage you may be in a situation where you are both repaying your mortgage and paying into the Circle on a monthly basis. You must determine if – in the event you are drawn early – you would be able to meet both payments.
No Financial Services Compensation Scheme protection
There is no Financial Services Compensation Scheme (‘FSCS’) protection in relation to the loans
through our platform. Therefore, any losses incurred by the failure of the loans would not be
protected by the FSCS. If StepLadder ceases to exist or goes into liquidation you would not be able to put in a complaint through the FSCS.
Past Performance
Past performance of loan performance is not necessarily a guide to future performance. Past events,the experience derived from these, or assumptions derived from any of these, do not predetermine the future.
Impact of fees
Full details of the fees payable by are set out in our terms and conditions, while these fees are
minimal and only for the administration of the Circle, the consumer should consider how these charges will affect their final deposit amount.
Credit Score
Missed or late payments may have an adverse effect on your credit score.
Platform Risk
If StepLadder ceases to exist or goes into liquidation you may experience delays in receiving your
money or you may not receive this back at all. As stated above there is no FSCS protection in relation to peer to peer loans.
No Guarantee of Mortgage
While the purpose of StepLadder’s business model is to assist consumers to obtain a deposit for a
property sooner than they would have, there is no guarantee that the individual will be offered a
mortgage. If you are drawn early in the Circle you will be borrowing the majority of your deposit and some lenders do not allow a deposit to be borrowed. You should consider this before participating in a Circle.
No Interest or Returns
If you choose to use the services of StepLadder you will not be earning any interest or returns on the capital you lend. While you may receive your deposit funds more quickly than you would have
otherwise, you will miss out on any return that you may have been able to achieve using another investment product.
Regulatory Risk
Peer-to-Peer lending is a relatively new industry and the regulation of the industry could change, this may have an adverse impact on the costs and risk of your investment or result in you incurring
financial loss.
Diversification Risk
Becoming a StepLadder member means engaging in peer-to-peer lending. This could be part of your personal financial planning. It should not be all of your investments.
Portfolio Investment Risk
As with any financial portfolio, we recommend that members spread their risk. We aim for this to be a core feature of StepLadder Circles, in that your fixed monthly contributions are loans to a different member of your Circle each month. Your maximum exposure to any one other member is a single month’s payment.
Is Peer-to-Peer Right For You?
Not all financial products fit your criteria. Carefully if StepLadder is right for you. Before joining a circle, please consider if you have the knowledge you need to understand the proposition and how it can affect your money. We are available by phone, email, and web chat to answer your questions as part of this important process.
Third Party Commission
Although you are not under obligation to use them, some of our trusted partners pay us a commission should you choose to use them.