A Beginner’s Guide to P2P Lending – Everything You Should Know from A-Z

Can I be totally honest with you?

The interest rate most investors get by investing in traditional bank products is so bad! Especially when compared to the high interest rates those very same banks charge the borrower.

Who makes the most money? Certainly not you, Mr. or Mrs. Investor. Nope, the bank makes the most money, and they used your capital to do so.

You may be pleased to learn that Peer to Peer lending offers an opportunity to change that.

Very simply, peer to peer lending can offer the investor a higher return on investment, and charge the borrower a more affordable interest rate, at the same time.

A Miracle Product or just hype?

This guide is an introduction to the mechanics of peer to peer lending, including the risks and rewards of this relatively new investment model, so you can get started right away, and avoid common pitfalls.

financial analytics

Just what is peer to peer lending?

The good folks at Pengepugeren describe peer to peer lending succinctly in their blog, “The Money Pug”

Crowd lending, also called peer-to-peer (or P2P) lending, is a form of lending to individuals or companies, where many small investors merge to hand out larger loans. For example, a given investor can participate in a loan of DKK 100,000 by contributing 100 kroner. In that case, the investor will receive 1% of the borrower’s repayments and interest.Pengepugeren.dk

It should also be noted that banks are not involved and there is both higher risk, and higher profit potential involved for the lender.

What is peer to peer lending, or crowd lending, and how does it compare to Crowd funding?

Crowd funding is slightly different from crowd lending.

According to www.crowdfunding.de, crowd funding is unique, because it involves many people, known as a crowd, funding one project.

What makes it unique is the borrower is a project initiator or leader, and the project initiator addresses the crowd directly, selling them on the idea of investing in their project.

This is not the case with peer to peer lending, which has a more anonymous manner of operation.

How peer to peer lending works is that you are given basic facts about the borrower such as age, country, credit score ect, and why they are borrowing the money, but not the fine details of the project or reason for borrowing.

As a peer to peer lender, you are not as invested in the ‘why’ of the borrower, but instead, focus on their creditworthiness.

What is peer to peer business lending?

Businesses as well as individuals can benefit from peer to peer lending.

One Cambridge University study stated that as much as 12 percent of new loans taken by small and medium sized business come from the peer to peer sector.

12 percent of new loans taken by small and medium sized business come from the peer to peer sector. Click To Tweet

Peer to peer business lending is a large part of overall peer to peer lending.

How does peer to peer lending work, and how can I get involved?



Lenders, also known as Investors are everyday people or businesses that want to loan to other people or businesses, in hopes of gaining a higher return than they would by putting their money in another investment.


Borrowers are those that want to receive money at a lower interest rate than the bank offers. The reasons for borrowing are fast and could be for home improvements, vacations, businesses expenses, a car and more.

Borrowers often look to Peer to Peer lending to avoid the copious paperwork required by banks, or because they simply want a smaller loan then the bank is willing to lend.

Platforms or peer to peer marketplaces

P2P Website Invest It In describes platforms as

… companies which act as intermediaries between the borrowers and the lenders. There are two types of online p2p lending websites; first p2p lending marketplaces and secondly p2p loan originators who directly engage with borrowers and lenders.

Peer to peer marketplaces group several loan originators under one roof or website.

Invest It In

Peer to Peer and Marketplaces and International peer to peer lending sites include:

Zopa, Mintos, AuxMoney, Dofinance, Ablrate, Bondra, Bitbond, Assetz Capital, Estate Guru, Fellow Finance, Finbee, Fundingsecure, Lendingworks, Lendahand, Proplend, Savy and many others.

In Depth LookP2P Privatkrediten offers an excellent P2P Platform overview featuring a detailed article on 10 of the top P2p Platforms available. This useful list of articles allows you to research the top platforms quickly without having to search all over the web.

Secondary Markets

Secondary markets are markets where an investor can sell their investment if they decide to liquefy. Some sites offer a secondary market, some don’t. An investor may also decide to buy another investors investment.

Further, a loan may be sold or bought on the secondary market for more than, or less than its face value. The purchase price depends on the loan’s payment status and borrower stats, and how much of a hurry the seller is to unload the investment.

What is a peer to peer loan?

Peer to peer loans are loans made to borrowers from a peer to peer platform. The borrower repays the loan using said platform and the platform in turn, pays the investor, including interest.

working with pc

How do I design the best p2p Strategy for my investment style?

What makes this P2P lending so special?

The ability to choose who you are lending to, for one.

Talerbox recommends searching for loans with 10% or higher interest, that are made to people over 60, as they are more conservative and likely to repay, who intend the use the loan for retirement, education or home improvement.

Talerbox warns against getting involved with so called ‘luxury loans’ for items like vacations, cosmetic surgery or jewelry, as they have a higher default probability.

Talerbox also says the loan description should be detailed and free of spelling errors. Think of it like a job interview or sales presentation. Is the borrower putting their best foot forward?

This is where your intuition and judgment come into play.

If the borrower can not be bothered to describe their project or reason for wanting a loan in detail, or spell check their submission, can you trust them with an important detail, like repaying the loan on time, every month?

Hot Tip: Just say NO to ‘luxury loans’ and poor grammar in loan descriptions.

Stefan at p2p-kredite-vergleich emphasizes the 5 rules for investing in Peer to Peer lending:

  1. Mix it up! Do not invest all your money into P2P loans. You must diversity and use other types of investments for a well rounded portfolio that is resistant to risk and economic downturn.
  1. Know your Endgame. List the goals and expectations you have for P2P lending. Include the timeframe and risk level in your goals.
  1. Start Small and Grow from There – If you are just getting into P2P lending, don’t invest everything you have at once, start with a small amount, an amount you can afford to lose. Get your hands dirty first, become comfortable with the tools and platforms out there before investing more.
  1. Spread your P2P investment across several loans. Do not ‘Put all your eggs in one basket”. Some advisors recommend you not invest more that 1% in any one P2P loan, in case it fails. If it does fail you may lose all your money. Ouch! Be sure you are also using more than one platform, as P2P platforms have been known to fail as well.
  1. Don’t Rush it. Peer to peer lending can yield faster results that some investments, but its still not a good idea to rush things or make rash decisions. Checking all of your investments everyday leads to impatience and may encourage changes to strategy that are counter productive.

Peer to peer lending review


For Lenders:

  •  Chance to earn a higher interest rate than a traditional bank offers
  • Low investment minimum, virtually anyone can become an investor with as little as 5 Euros on some platforms.
  • Shorter time frame from loan start to payoff, shorter terms also available.
  • More Liquidity, especially with a secondary market available.
  • Wide variety of Platforms
  • Convenience of investing on your schedule 24 hors a day.
  • Opportunity to invest in foreign or neighboring markets, many international platforms
  • Opportunity to earn more interest than you may in your own country
  • Ability to greatly diversify and invest a small amount in many loans at once

For Borrowers:

  • Chance to get a loan the bank may not approve
  • Small minimum loan size, suits wider range of needs
  • Fast funding, much more rapid than bank loans
  • Competitive interest rate, lower than what a traditional bank charges


For Lenders:

  • Borrower may default and you can lose your investment on that loan, or not earn as much
  • You many spend a lot of time managing a wide portfolio
  • Platform may have fees which eat into your profit

For Borrowers:

  • Peer 2 Peer lending may make it too easy to borrow money you don’t need or can’t pay back.

Get Started by Investing, It’s Easier than you think.

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Tools of the Trade:

P2P Loan Provider Comparison:

P2P-Kredite.com has a P2P loan comparison tool that allows you to filter results by interest rate, country, loan type, currency and other specifications. It is a very useful tool.

Welltrado has an easy to use peer to peer platform comparison tool that allows you to select a minimum investment, if there is a secondary market or not, and if the platform is regulated.

Cashback and bonuses:

Claus Lehmann with P2P-Banking has an extensive list of P2P platforms with a cash back or bonus offer to help you squeeze the most juice possible from your investment.

Funds transfer:

Funds transfer to and from any P2P platform can get pricy if you are a foreign investor dealing with an exchange rate. Experienced p2p investor Gerry at p2phero.com explains how ‘transferwise’ a funds transfer service, lowers these fees and provides transparency, by showing you all fees upfront, before the transfer is made.

Peer to Peer bitcoin Trading:

Ray Youssef, Co-Founder and CEO of paxful.com explains that the relatively new market of peer to peer bitcoin trading is a fantastic investment opportunity.

Bitcoin is still an early stage technology. Think about how the web was before Google AdSense. This program is incredible for anyone seeking ground-floor opportunitiesRay Youssef

Now, let’s dig a little deeper.

If you are like most investors, one of the first things you want to know about are the risks involved with P2P lending.

What are the Peer to peer lending risks?

The P2P Experts at Finanzfluss outline three main risks of Peer to peer lending:

  • Risk the borrower will not repay, aka borrower default
  • Risk that the P2p Platform has not properly graded the borrowers credit, leading to bad investments
  • The P2P platform itself going bankrupt a la “Trustbuddy” in 2015

Side note: In October 2015 a P2P platform “Trustbuddy” filed for bankruptcy. “Suspected Misconduct” was later revealed and investigators found SEK 44 million missing from client accounts.

So yes, there are risks, as well as substantial gains to be made with P2P lending. It is important to diversify loans, platforms, and not put all your investment capital into P2P loans.

 Is peer to peer lending safe?

Vincent Von of Freaky Finance puts it this way:

So only invest money into P2P credits, which you are not dependent on. In the worst case, you never see it again. I personally think a total failure is not very likely – otherwise I would not have invested here.

Nevertheless, this asset class should only be a small part of your portfolio.

Vincent Von

Speaking of portfolio diversification, another big proponent of this concept is Steffen Kriese of wirtschaftleichtverstehen. This website has information regarding P2P lending, along with other investments.

The Wirtschaftleichtverstehen website has a wealth of information about real estate and rental property investments which allow you to expand your investments. The member’s only area is accessible once you sign up for the newsletter and has all kinds of worksheets and calculators. The website is an invaluable resource and is highly recommended.

The wise Folks at Finlord also recommend maintaining a diverse portfolio that includes not only P2P investments, but stocks, real estate and other investments.

The Finlord website states “We are increasingly pleased with the Estate guru platform , where real estate projects are available.”

The real estate projects offered by Estate Guru are investigated fully, credit is analyzed extensively and there have been no defaults on the platform in two years. The revenue here averages 11%, although the amount of projects available for investment is admittedly lower than other platforms due to their strict selection criteria.

business advisor

Is it profitable long-term investment opportunity?

Here is the Bottom Line:

No matter how great the talent of efforts, some things just take time. You can’t make a baby in one month by getting nine women pregnant.Warren Buffet

Estonian P2P Investor Kristi Saare explains on her blog Money is Your Friend “For me, I’ve decided that for now, liquidity is not a huge priority for me, which means that I’ve allowed my portfolio to move towards longer term locked-in projects.”

I P2P speak, long-term means more than 1 year, up to 5 years, generally.

This means that there are long term investments available in P2p lending. There are also short term investments, and platforms like Twino and Mintos facilitate short term peer to peer lending.

Short term lending goes hand in hand with liquidity, or being able to easily cash out. Having a fast moving secondary market is a key factor when considering liquidity.

One thing is for sure…

While peer to peer lending does have terms as long as 5 years, on the whole, investments are short term, with many that have terms of 1 month to 1 year.

P2p lending regulation


In most countries, you need to include your earnings from P2p lending on your tax form. Oskar Streiter at Lending School says many German P2P platforms will issue a tax certificate you can use, but other platforms do not. In this case, you must find the interest income and report that.

Regulation by country:

Each country has their own law covering peer to peer lending so you need to find out what the regulations are for your own country, and the country where your chosen P2p platform exists, to see what regulations apply to you.

As an example, Investree, a p2p platform in Indonesia states on their website “funding and loans placed in Investree account are not and will not be considered as deposits held by the Company as stipulated in the Banking Regulations on Banking in Indonesia.”

The UK has the Financial Conduct Authority (FCA), which regulates financial firms in order to maintain the integrity of UK’s financial markets. Peer to Peer platforms are supervised by the FCA and once they are authorized they are subject to ongoing compliance and supervision.

Another governing body in the UK is the Peer-to-Peer Finance Association (P2PFA). Nearly ¾ of peer to peer lenders are members of (P2PFA). This association prescribes a strict set of rules its members must abide by in order to promote and maintain a high level of integrity in the UK Peer to Peer marketplace.

Keep in mind that not all countries have laws or regulations governing P2P platforms, and not all P2P platforms that fall under certain regulations are necessarily safe.

If you need evidence of this consider Bank of America, the “Too big to Fail” monster that gets away with murder in a supposedly well regulated industry.

How does the freeing of data help the P2P industry?

In July of 2017 we learned that “The European Commission Directive PSD2, which will apply on January 13, will force the banks of the European Union Member States to make their clients’ data available to third parties. PSD2 allows the customer to provide non-bank service providers with access to their financial data.

The entry into force of the directive breaks down the banks’ information monopoly, brings new makers to the market and more innovative solutions for consumers.” According to the Rahapuu Financial blog

Wait? What!

Translation: This gives P2P lenders and platforms an advantage, as the shared data will allow them to make better lending decisions.

Peer to peer lending statistics

Statistics on Peer to Peer lending are not hard to come by.

As of today, Peer to Peer lending as we know it is about 12 years old.

One of the original platforms, Zopa, has lent more that £2.60 billion, and has Over 60,000 active individual investors and Over 277,000 borrowers in those 12 years.

And that’s not all

If you want in depth statistics on the UK Peer to Peer market check this out.

I was surprised to learn that in the UK, lending in the peer to peer sector shifted from consumer to business lending. In 2014, 43% of loans were to businesses. In 2015 47% went to businesses, and looking at 2016 and 2017 numbers, the amount of peer to peer lending to businesses is gaining at a faster rate than consumer borrowing. Interesting!


Continuing Education

The Peer to Peer industry is one of rapid change. One must always keep themselves educated to stay ahead of the game.

Education isn’t something you can finishIssac Asimov

Many of the most successful people in any industry or field will tell you, the greatest investment you can make is in your own education. Many cite reading books as one of the easiest and least expensive to expand your knowledge.

Lars at passives-einkommen-mit-p2p.de keeps a list of recommended reading and updates it with his most current good read. Categories include P2P lending, personal development, building businesses and passive income investments.

Bastian of Talerbox keeps a top three list that has one of our favorite books: “7 Steps to Financial Freedom”, by the man who is “Not Your Guru” Anthony Robbins.

Another great way to stay on top of your game is by reading blogs and listening to podcasts. Tobias with Der Finanzfisch lays out his favorite finance and asset building blogs and podcasts on his website.

One of our favorite podcaster’s Finanzrocker has not just one, but TWO podcast on financial and p2p themes titled “Finanzrocker” and “Der Finanwesir rockt”.

If you are a visual learner Talerbox has video coaching , a video comparing the best p2p platforms, and a YouTube channel on the website.

If you go by the adage “you get what you pay for” you might want to consider the 4 week paid course at HurtlockerPro which promises to teach you how to identify a false breakdown, how to spot trends, and give you a solid foundation in P2P lending. As a bonus, the fee from the course is put in a collective account and invested over the 4 weeks, then the profits are divided among students.

How to start a peer to peer lending business

Are you Serious?

Get out your Wallet, because you are going to need it.

OK, Jokes aside….

Starting a P2P platform takes a large chunk of starting capital, an excellent team, top notch webdesign and extensive knowledge of the P2P industry, finance, marketing, economics and possibly law and government.

P2P platforms are not only in business for themselves, they are managing other people’s money, so if they fail, many other people will lose money as well. It is a serious venture and can not be taken lightly.

Not trying to slow you down here, but simply reading about how to start a P2P Platform will not be sufficient to gain the knowledge needed. Maybe a related degree (Business, Marketing, Finance Economics etc…) and some time spent working with an existing P2P platform or other financial institution would give a better education.

Do Give it a try

We hope you found this guide insightful. If you want an easy way to get started investing in peer to peer financing in a relatively risk free environment, please consider Do Finance as your go-to platform.