Ultimate Guide to Peer-to-Peer Lending (P2P Investing)

Peer to Peer investing is an alternative way to invest. You can earn up to 20% return on your money, and it’s really simple to set up!

What is Peer to Peer Lending?

Peer to Peer Lending (P2P) is the process of one individual (a “peer”), or company, seeking to borrow money from another individual (another “peer”) at a set amount. The result is generally a better interest rate for the borrower and the lender, as the middle man (i.e. banks and other traditional finance institutions) are cut out.

How does Peer to Peer Investing Work?

You (the investor) can search through other peoples loan applications, and decide if you would like to invest. Generally, you would invest small amounts of money across multiple loans for diversification. Similarly, one loan application will have multiple investors. P2P investing can be enticing due to a high rate of return (can be 20%+), and a regular stream of income (interest and principal paid back each month). However, like all good things, there are disadvantages and risks to be aware of as well.

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The Advantages of Peer to Peer Investing

Peer to Peer investing has many advantages, including:

Higher Interest Rate – with P2P lending, you are either able to set the interest rate (i.e., RateSetter), or are able to choose a return based on the risk you choose to take (i.e., Mintos)

Compounding Interest – most P2P platforms have an automated way for you to reinvest your money. Generally, you can select the interest rate, timeframe and other types of loan that can be automatically selected for you (however, this can also be a disadvantage).

Steady Stream of Income – P2P loans are generally paid back to the investors account on a monthly basis, including a percentage of the interest, and principal invested. This type of return provides money to be constantly entering your account each day or month (depending on your investments).

Diversification – you can select the amount of money you would like to. With platforms such as Bondora, you are able to put a small amount of money into multiple loans, spreading any risk of default.

Ease of Use – Creating an account and transferring money into the account is a very simple, streamlined process. Investing in loans is also as easy as clicking a button or 2. You can link your TransferWise account with all platforms.

No or Low Fees – Most of the time there are no fees associated with investing in loans.

Have a look my page detailing my returns for an example of platform diversification and passive income possibilities.

The Disadvantages of Peer to Peer Investing

P2P investing also has some disadvantages, including:

Risk of Default – Unlike banks which are classed as relatively safe, P2P investing has quite a bit higher risk. However, the risk of default has been minimised in accounts such as Mintos and Grupeer (who have options for a buyback guarantee if no funds have been received in 60 days), and RateSetter (who have a provision fund available in case of defaults.

History of Loan Applicant – P2P platforms provides varying amounts of data on the borrower that you’re looking to invest in. Sometimes you may only be provided with the sex of the person or their age. Other times you’re provided with current income, expenses, and previous loan history.

Platform Features

I have created a round-up of the most common platform features that are offered:

Automatic Reinvestment (Auto Invest)

Most platforms offer some kind of automatic reinvestment tool which allows investors to take a complete “hands-off” approach to investing. The tool generally allows investors to choose between:

  • loan type (Business, Personal etc)
  • country
  • loan originator
  • interest rate (%)
  • investment term (investment time in months)
  • strategy auto-invest limit
  • max amount per project
  • repayment type (amortization)
  • invest in loans already invest in
  • the expiry date of the reinvestment strategy.

Secondary Market

The secondary market is a place where investors can sell their already purchased investments to other investors. The secondary market allows:

  • increased liquidity, by allowing investors to sell out of a loan before the loan period is up
  • increased revenues, by allowing investors to sell loans at a premium to their original value
  • potential investors more options for purchasing loans
  • potential investors to buy secondary loans at a discount to their original value.

Buyback Guarantee / Default Guarantee

When investing in P2P loans, it is important to decrease your risk as much as possible. One way of doing this is to invest in loans that offer a buyback guarantee. A buyback guarantee provides assurance from a loan originator if the loan was to default. Buyback guarantee works by returning invested funds to an investor if a loan goes 5-60 days without a repayment.

Investor Buyback

The investor buyback is a service that some of the platforms provide, where they offer to buy the loan from you if you need to sell (for any reason). The platform will generally take a commission for this service.

Some of these platforms will refer to the investor buyback as a “buyback guarantee” as well. While it’s not technically an incorrect term, it can make it confusing with the other buyback guarantee for repurchasing defaulted loans.

Cashback Bonus

If you invest in a P2P loan that has the cashback deal applied, you will receive the value of the cashback back into your account. Cashback offers usually have set conditions, including a specific time frame that the offer is open.


Most platforms offer some type of referral system. The referral system allows investors to earn additional income. The system works by the investor sharing their referral code with a friend, who will then sign up for the product. The platform will reward both the initial investor and the referred friend with a bonus. Amounts refereed will vary between platforms and loans invested in.

European Crowdlending Platforms

Bondora (Average return 9.14% – 17.14%)

European P2P Lending Platform Bondora

Bondora is an Estonian P2P lending company, and was founded in 2009. Bondora only allows users to invest in Euros, and focuses on unsecured consumer lending in Finland, Spain and Estonia. The investment base has over 45,000 investors, and boasts historical annual returns of over 10.7%. Only personal loans are issued through Bondora.

Mintos (Average return 11.69%)

European P2P Lending Platform Mintos

Mintos is a Latvian P2P platform launched in 2015, and classes itself as a global online marketplace for loans. At the time of writing (December 2018), Mintos facilitates 58 loan originators which operate in 28 countries. The average net annual return for investors through Mintos is 11.16%, with more than 95,000 investors registered. Each investor has an average investment of over 4,000 Euro. Loans issued through Mintos are varied, including business, personal, mortgage, agricultural, short term, pawnbroking, invoice financing and car loans. Mintos also has a secondary market, where people can buy or sell their part in a loan for a discount or a premium, allowing you to achieve an even higher return.

Grupeer (Average return 14.40%)

European P2P Lending Platform Grupeer

Grupeer is a Latvian P2P platform, created in 2016. Grupeer works in a similar way to Mintos, whereby acting as a platform that allows loan originators to issue loans. Currently, Grupeer only accepts money transfer from licensed credit institutions of the European Economic Area and only deals in Euros. Loans issued on Grupeer focus on investments in credit deals (i.e. secured loans issued to individuals or small businesses), and development projects.

Fast Invest (Average return 12.4%)

Fast Invest Logo

Fast Invest is a United Kingdom P2P platform created in 2012. The platform offers consumer loans in Spain, Denmark and Poland. All loans have a maximum timeframe of 12 months and loans come with BuyBack and MoneyBack Guarantees. The MoneyBack guarantee allows the investor to sell their loan back to Fast Invest, before the investment period is up (but you will lose the interest). The BuyBack Guarantee will settle any arrears if payments become more than 3 days late. The minimum investment amount is only €1.

P2P and Crowdlending Investment Platform Reviews

Best European Peer to Peer Investing Platforms

Each of the various P2P investment platforms offers different loans to invest in, different rates of return, and different opportunities.

Check out my Comparison of the Best European P2P Investment and Crowdlending Platforms 2019

Common Peer to Peer Investing and Crowdlending Terminology


A negotiated and generally legally binding arrangement between two parties.

AML (Anti-Money Laundering)

AML refers to laws and regulations around preventing criminals from hiding illegally obtained money as legitimate income.


Gradual paying-off of a debt in regular instalments over a certain time period. Examples of amortization can include Full (regular interest and principal payments), Partial (paid off in big instalments near the end of the loan period), Interest Only, Bullet (all payments at once), Balloon (amortization payments and large end payments).

APR (Annual Percentage Rate)

The annual rate charged or earned through an investment. The APR also includes any fees and other costs. An example: Investing $10,000 with an interest rate of 6%, would earn you $600. If there was also added fees, cashback, bonuses etc that equate to $300, then your earnings would be $900.
APR would be 9%, Interest rate stay at 6%

Auto Invest

An automatic investment tool which purchases new loans based on the setting entered by the investor.

Buyback Guarantee

A buyback guarantee is a guarantee that is issued by the loan originator, that confirms the loan will be bought back if it has been delayed by a set period. Sometimes interest payments for the missed time will also be included.

Cash Drag

The time from receiving a dividend, payment or income to when those proceeds are used again (i.e. the money that is sitting in an account, not earning interest)


Something that has been pledged as security for repayment of a loan. The item is forfeited in the event that the loan defaults.


Many people, or businesses funding a project. Returns for investment may range from gifts, to money to a part in the business.


A type of crowdfunding, where many investors (i.e. the crowd) will fund a loan from a borrower. Interest is returned at set times.

Default Rate

The rate at which debt holders default on the amount of money they owe. In the sense of P2P investing, the default rate is a percentage of the loans, from a loan originator, that have defaulted.


The concept of investing small amounts across many different loans, sectors (i.e. personal loans, business loans) or industries (i.e. real estate, Peer to Peer investing, shares, funds). Spreading investments is one way of spreading out risk.

FCA (Financial Control Authority)

The Financial Conduct Authority is the conduct regulator for 58000 financial services firms and financial markets in the UK.

Grace Period

The amount of time after repayment has been missed before a loan originator counts the loan payment as being missed. The grace period is a time that accounts for things such as public holidays, payment transfers, exchange times etc. The grace period can vary widely.

IRR (Internal Rate of Return)

IRR is used to estimate the profitability of a potential investment.

Invoice Financing

A way for businesses to borrow money against money expected from customers. Invoice financing improves cashflow, by being able to pay for further goods (i.e. suppliers, products) while waiting for customer payments.

KYC (Know Your Customer)

KYC regulations are a part of the AML (anti-money laundering) framework. KYC is specifically about a business verifying the identity of its clients.


The availability of an asset in a market. A highly liquid market makes it easy to buy or sell assets.

Loan Originator

A company who acquired a loan. This loan is then shared on a Peer to Peer Investing Platform, allowing others to invest in the loan.

LTV (Loan to Value)

LTV is a calculation of the current outstanding loan balance against the collateral value. Loans with a lower LTV are considered safer than those with a high LTV.

P2P (Peer to Peer)

P2P refers to the connection of one peer (whether it be a person, business or machine) to another.

P2P Lending

One investor lending money to one borrower. The investor and borrower may be a person or a business. There are many platforms connecting investors with borrowers.

Primary Market

An area where investors can purchase loans from a borrower.

ROI (Return on Investment)

A performance measure to determine the efficiency of an investment. This can be used to compare different investments.

Secondary Market

A space where investors can sell their investment to others, sometimes at a premium or a discount.

Secured Loan

A loan that has some collateral pledged against it in case of default.

SEPA (Single Euro Payments Area)

A payments system created by the European Union which makes cashless transactions across euro countries easy.

Skin in the Game

Refers to the amount of money (usually in percentage) that a loan originator will have invested in each loan. Skin in the game is to ensure the interests of a loan originator are aligned with the interests of an investor.

Unsecured loan

A loan that has been obtained without any backing assets for collateral.

XIRR (Extended Internal Rate of Return)

XIRR is an extended IRR (Internal Rate of Return), which measures returns of multiple investments at different points in time.

YTM (Yield to Maturity)

The expected rate of return of an investment, expressed as an annual rate.

Disclaimer: I have an interest, and have invested in all platforms mentioned in this article. You can see the returns of my investments through the page My Returns.

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