Self-select vs. account-based lending

26th April 2016
peer to peer lending

One of the many benefits of peer-to-peer lending is the freedom of choice. The freedom to tailor your investment to suit your needs as an investor. 

Not only can you choose where and who to invest in, you can also choose your level of involvement with the investment itself. 

For some, complete control over their money is a must. Sticklers for detail, they want to know exactly where their investment goes and manage the risk that goes with that themselves. For others, such responsibility is not only time consuming and baffling, it’s downright scary. They simply want to invest in a platform and watch it go to work without the hassle of managing the finer details. 

The concept of peer-to-peer lending, linking investors directly to borrowers, is similar across all the platforms. But within the little nooks and crannies of each type of investment, sits a multitude of complex bits and bobs which make each platform and investment type unique.

Confused? Don’t be. One decider in which all peer-to-peer investments have in common is whether they are ‘self-selected’ or ‘account-based’ marketplace lending – which we’re going to tackle head on in this feature. 
What is self-select peer-to-peer lending?

Self-select peer-to-peer platforms allow you to choose exactly who you lend to. You’ll decide who you wish to invest in and in some cases the rate you want to lend at. Loan terms are bespoke for each investment, and investors are recommended to conduct due diligence for each loan before they invest.

What are the benefits?

Bespoke investment

Tailored to your personal needs and your ability to deal with risk.

It’s up to you

You decide what type of borrower to lend to. 

Manage risk

You choose the rate and risk factor - complete and utter control over your investment. In essence, you’ll be your own investment manager.

Potential for higher returns

Such manual investment pairs higher risk with higher rewards, with (at time of writing) platforms such as Proplend and Rebuilding Society offering more than10% on individual loans.

What are the downsides?

Time consuming

You’ll be responsible for researching each potential borrower, dealing with loan proposals and you’ll take on the responsibility of determining worthiness based on your own knowledge. However, the platforms will help you, by ranking borrowers and providing an expected return rate which indicates the level of risk.

Lack of data

Not all platforms provide the parameters that could help determine a good borrower from a bad one.

Greater risk

Investing larger amounts of money in a smaller number of companies means that if one defaults, a larger amount of your capital is potentially at risk. In addition, many self select platforms are not covered by provision funds. Check out our list for a full comparison.

What is account-based peer-to-peer lending?

If self-select is complete control of the account specifics, account based is somewhat the opposite. In an account-based investment, you choose a platform and invest your money for the amount of time that you wish to, the platform will then spread your investment (and your risk) across many different borrowers and manage everything for you. 

What are the benefits?

Spreading your investment

Naturally, by taking a step back and relying on the platforms’ data, you could cut the potential risk of your investment. As the platform diversifies your investment across a large amount of similar borrowers as smaller investments, the risk of loss through default lowers, and any losses could be covered by your other investments (as well as any platform protection).

Risk management

Having a peer to peer company assess and then pool borrowers based on their risk goes a long way to lowering a risk of serious loss. Spreading investments automatically helps diversification, and with added protection often in place such as insurance and provision fund risk is better managed.


Leaving the responsibility to the platform frees you up to do other things. You simply choose your investment type, how long you wish to invest for and choose your risk rate. 

What are the negatives?

Less control

When you remove autonomy, you remove control. With an account-based investment, you’ll have less say in who you’re lending to, instead choosing your borrowers by the platform itself, rather than an individual loan. You rely on the platform to decide what borrower is appropriate for your level of investment.

Potentially lower returns

Whilst these are potentially higher interest rates than traditional savings accounts, they tend to be lower than self-select loan investments. 

So, what should I choose?

That really depends on you as an individual. For the highly experienced investor that wants to know the specifics of their investment, self-select may be the ideal choice. You’ll be able to handle each investment from the outset, drill into the fine detail and on some platforms set a rate interest that you’re comfortable with. Don’t forget that these types of investment carry a greater risk, but with greater risk also comes greater potential return. 

For the more conservative lender who wishes to see their money go to work in a particular way but without the stress of dealing with all the fine print, account-based lending could be for you. Choose the asset class you want to lend against, find a provider platform, choose a time period and open an account. It’s that simple. Read our guides or try our search function to find out more about each asset class available. 

Download the guide and take it with you wherever you go.

Your capital is at risk if you lend to businesses. Peer to peer lending is not protected by the Financial Services Compensation Scheme. Please read our full risk warning here.