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Peer-to-Peer (P2P) Lending: Investing Basics

Here is how peer-to-peer lending works as an investment, and what to check before putting money in.

  1. What P2P lending is

    Peer-to-peer (P2P) lending, also called marketplace lending, is an alternative investment where many individual investors fund loans to borrowers (individuals or businesses) through an online platform, earning interest in return. In most countries, these platforms operate under specific financial regulations designed for this type of lending.

  2. How the investment process works

    After signing up on a platform, investors choose a loan product to fund and contribute money toward it. As the borrower repays, investors receive their share of principal and interest according to a set repayment schedule.

  3. Expected returns and real risk

    Some P2P loans advertise double-digit expected returns, but real risk comes with that: if a borrower defaults or falls behind on payments, investors can lose part or all of their principal. Unlike a bank deposit, there is no guarantee of getting your money back.

  4. Investment limits for individual investors

    Because of the higher risk, many jurisdictions cap how much a retail investor can put into P2P lending each year, often with a lower cap for unsecured, credit-based loans and a higher one for loans backed by collateral such as real estate. Rules vary widely by country, so check what applies where you invest.

  5. Investor protection safeguards

    Reputable P2P platforms are generally required to keep investor funds segregated from the platform's own operating funds, so that if the platform itself runs into financial trouble, investor money is not mixed in with, and potentially lost alongside, the company's own assets.

  6. What to check before investing

    Before investing, it is worth reviewing the platform's published default and delinquency rates, whether a given loan has any collateral backing it, and how realistic recovery looks if the borrower stops paying.

An alternative to a bank, not a substitute for one

P2P lending is regulated to varying degrees around the world, but unlike a bank deposit, it does not come with principal protection or deposit insurance. This page is general educational content, not investment advice, so always check a platform's current disclosures and the rules that apply in your jurisdiction before investing.

Diversifying across many loans lowers single-borrower risk

Because any individual loan can default, spreading an investment across many small loans to different borrowers, rather than putting a large sum into one or two loans, is a commonly cited way to reduce the impact of any single default on your overall return. Many platforms support this by letting investors fund small fractions of many loans.

Frequently Asked Questions

Is P2P lending covered by deposit insurance?

No. P2P lending is an investment, not a bank deposit, so it is not covered by deposit insurance schemes. If borrowers default, investors can lose some or all of their invested principal.

Why do some countries limit how much I can invest in P2P loans?

Because P2P lending carries meaningfully higher risk than a savings account, regulators in many countries cap how much an individual retail investor can put into these loans each year, to prevent overexposure to a single risky asset class.