What are the Differences between IFISA and Peer-to-Peer Investment?

Peer to Peer investment is done between an investor and the borrower without the involvement of an intermediary financial institution. This saves both the investor and the borrower money and time. An investor can earn interest as long as the investment isn’t liquidated. Interest earned from Peer-to-Peer investment is quite high as compared to mainstream traditional banks. But these earnings make the investor liable to pay taxes after he hits a certain income threshold. One can reinvest these earnings in innovative finance isa (IFISA) that enables investors to earn returns under the tax-free wrapper provided by IFISA. IFISA and Peer-to-Peer investment helps an individual to earn profits.

Peer-to-Peer investments are made through online platforms where a lender matches a prospective borrower. The principal amount is used to earn interest while in IFISA this interest is further reinvested to earn a profit. This online nature of such investment platforms makes investments fast and easily accessible. Both the investor and the borrower just need to make an account on such platforms. The investor can transfer his money into his account and make it available and the borrower can apply for a loan by providing his necessary details. The process is quite the same for IFISA to a larger extent. Despite these similarities, both have certain differences depending upon their date of inception, legal practicality, platforms they offer such services and their reliability, flexibility, ease of doing investment, interest rates, etc.

Peer-to-Peer investment started in 2005 by Zopa while IFISA started in 2016. Peer-to-Peer investment couldn’t get recognition till 2011 since its inception because of the global recession of 2008-2009. But after 2011 it made its strides and entered into the non-conventional financial arena. The path to glory for Peer-to-Peer lending was full of ups and downs. While this was not the same for IFISA.

IFISA has higher interest rates with respect to other investment schemes. IFISA interest rates are between 8% to 16%. Interest rates for Peer-to-Peer investment are substantially low in comparison to IFISA. These rates vary between 3% to 6% depending upon the investment provider.

Peer-to-Peer investments are not protected under Financial Conduct Authority(FCA) while IFISA is. An investor who has lost investment by fraud and borrowers default can not sue if he has not subscribed to IFISA. FCA may not reimburse the investor but still can punish the offender. Since FCA’s legal framework also encompasses cyber crimes. An individual who is a victim of cyber crimes for example identity theft, cyber theft, and cyber fraud, can take the case to the FCA.

One could invest in IFISA with just £1 while the minimum amount for Peer-to-Peer lending investment is higher. An investor could invest in Peer-to-Peer investment as low as £10. The maximum amount for Peer-to-Peer lending without IFISA is around £12,000 to £30,000 after which an individual is liable to pay taxes. Similarly, the maximum amount for IFISA one could invest without incurring any taxes is £20,000.

Peer-to-Peer provides an investor with quite decent liquidity. This means an investor who has invested in peer-to-peer investment can not transfer his principal amounts unless and until he receives his loan first. While such a liquidity option is not available in most IFISA investments. For example, if you are investing in stock and shares ISAs then you can not sell your shares and stocks until the end of the agreement.

Most peer-to-peer investment platforms are not registered and regulated by the Financial Conduct Authority(FCA), so all the platforms are not reliable. But all the IFISA investment platforms are registered with FCA. Thus, they could be reliable. And Investors intending to invest in IFISA can simply visit the FCA website. There he can check whether the platform of his choice is registered with FCA or not.

Peer-to-Peer lending investments are usually made for borrowing purposes. Under Peer-to-Peer investment one could borrow money from businessmen to individuals and some small businesses. However, IFISA investments are more diversified as opposed to Peer-to-Peer lending. One could not only lend money to other individuals and businesses but can also invest in stocks. This liberty to invest in stocks is not available in Peer-to-Peer lending.

One could invest up to £20,000 under the tax-free wrapper of IFISA for a tax year. While the time duration for peer to peer lending is variable and one could invest from one month to 6 years. The time duration of Peer-to-Peer lending is extendable and the investor and the borrower can mutually extend the time duration. In IFISA, an individual can earn tax-free profits for a tax year. After which he has to presubscribe to the new IFISA policy.

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