peer-to-peer lending – What is so good about p2p?

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P2P loans or peer-to-peer lending are a relatively new way of investing money and this only became possible through the Internet. But how exactly does it work and how can you also invest your money? How safe is the investment and how high is the possible return?


While many financial investments have been established for a long time, peer-to-peer lending is a relatively new form of investment. It involves private individuals lending money to other private individuals and receiving interest on it. This has been around for a very long time, but was not possible on a large scale until the introduction of the Internet.

In 2005 the company Zopa was the first to develop a platform and creating a marketplace. On these marketplaces loans can be traded, financed and granted. As an investor, you have the opportunity to decide who you want to give a loan to and who not. In addition, depending on the platform, you can also sell the loans again. Here you can find an overview of the best peer-to-peer lending platforms.

Since then, the industry has grown very strongly and there are hundreds of suppliers worldwide. This has created many new jobs in recent years. In addition, everyone now has an easy way to lend money and earn a high yield. It was about time that these new structures were created. This will make the world less dependent on banks.

How does peer-to-peer lending work?

In the earlier times, a person borrowed money from another person. Then a promissory bill or something similar was drawn up and conditions for repayment and collateral were defined. The creditor gave money to the debtor and the debtor paid it back in installments or at the end of the agreed time. But how are you going to give money to someone you don’t even know?

To this end, these platforms have created marketplaces where these loans are traded. In principle, this still works the way it used to in the past. The debtor receives his money from the platform operator or a subordinate lender. These are in direct contact and take care of the organizational things such as accounting.

But what is different now? Today, there is no longer just one creditor, but p2p loans or peer-to-peer lending is financed by many creditors. And so they are in the game as lenders. They can select the loans they want to invest in on the platform. In addition, some operators also provide a possibility to invest automatically. You have certain filter functions at your disposal to limit the loans.


Assessment of credit capacity

Most peer-to-peer lending platforms rate the credit capacity of lenders and or borrowers. For example, they use a scale from A to F or from 1 to 10. You must know that A or 10 is always the best value. In addition, the scales are also highlighted with colors. Green means safe – yellow is in the middle – red is risky.

This scale should help the investor to estimate the risk of an investment. But keep in mind that even the platform is not immune to making a mistake.

As a rule, however, it is also the case that with a higher risk you also have a higher chance of higher yield. You can now decide whether you want to invest more conservatively or not. This is entirely up to you how you want to handle it.

Why diversification is important?

With the different providers you can already invest with $1, $10 or §50. But you should not put all your money into one loan. For example, if you want to invest in peer-to-peer lending on a platform, then divide it among as many loans as possible.

Let’s assume you invest $1,000 in a loan. What happens if the debtor can no longer pay? Then you have to hope that he might be able to pay again later, or that the platform will step in. Maybe a bailiff can still find something usable. But if not? The $1,000 invested will probably be gone.

If you invest the $1,000€ in 100 different loans instead, it looks completely different in case of a default. You would not lose 1,000 € but only 10 € and thus 1%. This is with an expected return of 5-15% more than tolerable.

That’s why you should always diversify your investments in p2p loans or peer-to-peer lending. I personally try to have at least 500 different loans per platform. This way I reduce the default risk enormously and if a loan defaults it is only 0.2% of my investment. To date, I have done very well with this strategy.

What are the types of p2p loans?

The most widespread type is consumer credit. Here, a private individual borrows a loan to buy and finance a television set, for example.

There are also many loans with short term. Here a person often needs a few months more time to pay a bill.

There are also car loans and real estate loans. These have the advantage that the car or the property serve as collateral in the event of insolvency.

Business loans serve companies either as interim financing or as financing the growth of the company.

Forward loans, pawn loans or agricultural loans are far less common.


What are the advantages and disadvantages?

Here are many things I could of course include. For one thing, the returns are not subject to such strong fluctuations as, for example, in the stock market. This means you benefit even more from the compound interest effect.

On the other hand, investing in p2p loans or peer-to-peer lending is a relatively new form of investment. As a result, there are still no long-term studies. In addition, it is a high-risk investment.

What opportunities does peer-to-peer lending offer?

Since the interest rates on saving accounts are at the moment so low, it is important to invest your money somewhere else. As real estate is very expensive at the moment, p2p loans or peer-to-peer lending offers an opportunity for the risk-oriented investor. In a largely uncertain market environment of crises and pandemics, peer-to-peer lending has proven its worth in recent years.

Since the beginning of peer-to-peer lending marketplaces, the number of loans granted has increased considerably. In 2005, loans were granted worldwide for approximately 118 million dollars, and by 2012, the figure had already reached 1.5 billion euros. To date, the largest platform from the U.S. alone – Lending Club – has issued over $50 billion in p2p loans. The market has grown enormously, but is still far from reaching its limit.

Since this type of investment is still so new, you now have the opportunity to skim your profit. It is not yet clear in which direction the market will develop. Maybe in a few years the returns will not be as high anymore. But I am firmly convinced that peer-to-peer lending belongs in every portfolio of a risk-conscious investor.

What are the risks with p2p loans?

How can I exclude the risk that the peer-to-peer lending platform becomes insolvent? What happens then? Imagine that the debtor can no longer pay his loan. Is your money then gone?

a) Insolvency of the peer-to-peer lending platform

First of all, you should not invest on the newest and smallest platforms. The bigger and more established a platform is, the lower the risk of insolvency. Be wary if the promised return seems too high or if the companies do not publish annual reports. Check how many people work there and if the company has verified licenses.

Many platforms have developed mechanisms to protect investors. You even continue to receive interest from your investments. In addition, some platforms have trustees who are supposed to take care of the liquidation if the worst comes to the worst. Since there have not been many bankruptcies to date, this will only become clear when the time comes. Try not to bet on one horse, then you can spread your risk more broadly.

b) Borrower can no longer pay credit

This always happens and is quite normal. This should be planned for in every investment. As already written above, diversification is the best way to counter this.

But what does the platform do if a debtor can no longer or no longer wants to pay? The money lender will contact the debtor. As soon as there is no response, however, a debt collection agency or similar is called in. Depending on the platform, the success rate is different. Look at the statistics of the website before. Then you can then decide for yourself whether this is okay for you or not.

In addition, some peer-to-peer lending platforms also offer a so-called return guarantee. The platform would step in if the debtor does not pay. However, this is also not 100% secure. For me, however, this has worked very well until today. The designation and handling varies among the operators.


  • High yield up to 15% per year
  • Wide range of credit types
  • Automated investing adjustable
  • Investment from 1 Dollar
  • High diversification possible
  • Many p2p platforms


  • No deposit insurance = high risk
  • Dependency on platforms
  • P2P lending is risky

Which p2p platform is interesting?

I just want to repeat that to you. Do not bet on a completely new platform. Look at the annual reports etc. before you invest your money. To make it easier for you, I have compiled the largest platforms in Europe. If you like to invest in real estate, then you also have the opportunity with peer-to-peer lending.

Why only Europe? Of course, there are platforms in the U.S. as well, except that if you live in Europe you can’t invest there at the moment. Maybe that will be possible in the future, but unfortunately not at the moment. But do not worry, in Europe there is a wide range of platforms


For all those who would like to earn high returns, investing in peer-to-peer lending can be a possible form of investment. Only with a high yield it is possible to use the compound interest effect in the best possible way and faster to obtain the desired assets. Please have a look at my compound interest calculator.

However, please make sure that you diversify your investments. Diversification is my top priority. Don’t put all your eggs in one basket. It is best to mix different forms of investment. Be it buying and renting real estate, stocks, ETF, peer-to-peer lending or cryptocurrencies.

Attention – peer-to-peer lending has a high risk!
Please be aware that p2p loans may not be repaid and you may lose your investment. Even any guarantees given by the platform cannot fully protect you if the borrower or the platform is insolvent.

Frequently asked questions

Yes, there are many. The biggest and best platforms are: Prosper, Payoff, LendingClub, Peerform, Upstart, StreetShares and Funding Circle

Depending on the platform, you can earn between 5% and 20% in interest.

Please be aware that loans may not be repaid and you may lose your investment. Even any guarantees cannot fully protect you if the borrower or the platform is insolvent.

There is peer-to-peer lending all over the world. The largest platforms are in the USA and Europe.

It all depends on how much risk you want to take. I deliberately do not want to make a recommendation, but I am always in favor of the highest possible diversification of my investments.

GELVOS is all about “How to make money without stress”. For this purpose, all articles about finance and joy of life are divided into these sections: make. save. invest. live. If you don’t want to miss anything, subscribe to our free newsletter and get a big step closer to your goals!

This article is not an investment advice, it is only our personal opinion. We report here only on our personal experiences and findings as private investors. Thus, my texts serve solely to impart knowledge and do not constitute an invitation to buy or sell investment products. For further information please refer to the disclaimer.

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