Peer-to-peer (P2P) lending once looked set to transform consumer borrowing. The reality has been more complicated — several major UK P2P platforms have closed since 2020. But regulated P2P borrowing still exists and can, in the right circumstances, offer competitive rates. Here is an honest comparison with bank loans.
The Core Difference
| Feature | Bank Loan | P2P Loan |
|---|---|---|
| Who lends to you | The bank (using depositor funds) | Individual investors via a platform |
| FCA regulated | Yes | Yes (for authorised platforms) |
| FSCS protection | Deposits protected; loans are obligations | Not applicable to borrowers |
| Rate determination | Bank’s internal pricing | Platform’s algorithm + investor demand |
| Application | Bank’s own process | Platform’s online process |
| Decision speed | Minutes to days | Minutes to days (similar) |
| Repayment obligation | Unchanged if bank changes ownership | Unchanged if platform fails |
Rates — How Do P2P and Bank Loans Compare?
In 2026, the rate difference between P2P and bank loans is smaller than it was in 2015–2019. Most mainstream banks now offer personal loan rates starting at 6–8% APR for good-credit borrowers. P2P platforms offer similar rates for borrowers with strong credit — and higher rates for riskier borrowers.
| Borrower profile | Bank (typical) | P2P (typical) | Advantage |
|---|---|---|---|
| Excellent credit, £10,000+ | 6–8% APR | 5–9% APR | Similar; P2P may edge it |
| Good credit, £5,000–£10,000 | 8–12% APR | 8–15% APR | Bank often cheaper |
| Fair/poor credit | 15–30% APR | 15–35% APR | Credit union often best |
Key point: P2P rates are not automatically better. Always compare actual quotes from both sources using soft searches before committing.
What Happens if a P2P Platform Fails?
Several UK P2P lenders closed between 2019 and 2022, including some major players. When this happened:
- As a borrower: Your loan continued under the original terms or was transferred to a third-party servicer. You were still legally obliged to repay.
- Platform closure does not cancel your debt.
- FCA rules require all P2P platforms to maintain wind-down plans (sometimes called resolution plans) to manage loan books if the platform ceases trading.
Before using any P2P platform, verify it holds full FCA authorisation (not just interim permission) at register.fca.org.uk.
Worked Example
Scenario: Daniel wants to borrow £7,500 over 3 years.
| Option | APR | Monthly payment | Total interest |
|---|---|---|---|
| High street bank | 8.9% | £239 | £1,100 |
| P2P platform (excellent credit) | 7.5% | £233 | £882 |
| P2P platform (good credit) | 11% | £246 | £1,356 |
In this example, a top-tier P2P rate saves around £218 versus the bank — modest. If Daniel has only good (not excellent) credit, the bank is cheaper. The saving is not worth the extra research time unless Daniel is actively getting quotes from both.
Is P2P Borrowing Right for You?
P2P may be worth comparing if:
- You have an excellent credit profile and want the best possible rate
- You are comfortable using online-only platforms
- The platform is clearly FCA-authorised and has a track record
Stick with a bank or building society if:
- You prefer an established, familiar institution
- You already have a good relationship with your bank (may get better rates)
- You want face-to-face support
Consider a credit union instead if:
- Your credit profile is not excellent
- You want more flexible underwriting
Next Steps
Before borrowing from any source, compare real quotes using soft eligibility checkers — not advertised rates. The Loans and Borrowing Hub covers all borrowing options side by side, including the alternatives to standard loans.