What Is Peer-to-Peer Lending?

Peer to peer lending is also called P2P lending or crowdlending. Peer-to-peer (P2P) investing marketplaces or peer to peer lending platforms are basically websites that allow you to lend money to individuals and businesses and earn interest when the money is paid back. Peer to peer lending sites are literally booming not solely in Europe, but across the world. Basically, P2P lending brings loan originators and investors together. For me, P2P lending is a great way to generate some passive income.

Investors can diversify their risk and achieve higher interest rates than currently available on savings accounts or bonds. There are many different platforms and types of loans you can diversify in. Typical peer to peer loans:

  • Agricultural Loans
  • Auto Loans
  • Business Loans
  • Development Projects
  • Invoice Financing
  • Mortgage Loans
  • Pawnbroking Loans
  • Personal Loans
  • Short-Term Loans
  • Emergency Loans

Buyback Guarantee

Some peer-to-peer lending platforms offer a buyback guarantee. Basically, loans that are not paid on time will be repaid to you after 60 days by the loan originator (Sometimes 30, or even less in some platforms).
Personally, I always try and use a buyback guarantee for every loan I purchase in order to reduce risk. Most loans on most platforms come with Buyback Guarantee, but even though I may get a higher interest rate without it, I do not think it’s worth the risk unless it’s in one of the crowdfunding platforms.
Not all platforms offer Buyback Guarantee though, so if you want to invest only on loans with it, you need to pay attention.
For example, a buyback guarantee is not available for CrowdEstate. However, this is a common situation for business and real-estate projects.

How much can you earn on Peer To Peer Lending in Europe?

I personally believe that peer to peer lending is one of the best ways to earn some passive income.
The return will vary depending on several factors, mainly the platform, originator, currency of the loan, type of loan, and Whether the loan is secured with “Buyback Guarantee.” The cool thing about P2P lending is that there are not many fees involved.

To give you a rough estimate, you can expect returns from 5% to 15% per year in most European P2P platforms. Even inside the same platform, you will find different kinds of returns, depending on the type of loan, loan issuer, risk, and currency of listing.

Which is the Best P2P Lending Platform?

The P2P lending platform I am using the most is Mintos (and I believe it to be the best platform in Europe), but you might also want to check platforms like Grupeer, Lenndy, PeerBerry, ViaInvest, Viventor, FastInvest, Robo.cash, and DoFinance. Also, if you are more risk averse, you can try Bondora. I will be reviewing them separately as I invest in some of them. You can click here to check platform reviews.
If you want to invest in p2p loans, you might also want to check real estate crowdfunding platforms like EstateGuru, Reinvest24, CrowdEstate, and Bulkestate.
Also, some business crowdfunding platforms offer high yields like Crowdestor, Flender, and Envestio.

What are the Risks?

Yes, there are also risks, in fact, p2p investments are considered high risk. I try to minimize this risk by investing in “best in class” loan originators with Buyback Guarantee, but the risk always remains that a loan originator will default just like it happened with Eurocent on Mintos. Every wise investor should consider the risks of every investment before investing their money. Investing in peer to peer lending has a number of risks:

  • Borrower defaults – Most of the loans are unsecured so an investor has little recourse if the borrower decides not to pay and collection efforts are often fruitless. This is only applicable for loans not secured with a buyback guarantee.
  • Loan originator bankruptcy – Most platforms have put in place arrangements to ensure that investors continue to receive payments on the loans in which they have invested in through their marketplace.
  • Poor loan diversification – many new investors get caught in this trap. They do not take advantage of the €10 minimum investment. If you invest in 20 loans at €300, you are running a much higher risk than if you invest in 600 loans at €10.
  • Liquidity risk – Not all platforms have secondary markets and the ones they do, like Mintos, loans can be sold, but if you need to liquidate your entire portfolio, you will likely lose some principal in the process.
  • Market-wide event or recession – While P2P lending has been around since the latest economic downturn in 2008, the asset class still remains untested when platforms were originating significant volumes. In the event of a recession, default rates will increase, and that will result in a decrease in investor returns.
  • Lowering of Underwriting quality – If a platform reduces its loan requirements, then the quality of loans will decrease, resulting in higher default risk.

Obviously, I am a huge proponent for P2P lending. I just want you to know the risks.

Minimizing risk

P2P lending can be as safe as you make it out to be. I suggest starting conservatively and also diversifying your investments. In other words, don’t put all your eggs in just one basket. Instead, hedge your bets by spreading your money across many loans. This is the best way to protect yourself against any investment.


Peer-to-Peer lending is a great way to generate some passive income. If you’re interested in trying out any peer to peer loan platforms, I would suggest you start off with Mintos because of the returns I was able to secure and my overall satisfaction with their platform. You can check some platforms here to see an overview of all of them.

If you have any questions about P2P lending or you have any comments for me, please leave a comment.

Until Next Time,

Articles you might like:

One Reply to “What Is Peer-to-Peer Lending?”

  1. Hello Peter, thanks for your informative blog! I’ve learned a lot from it and have got started with Mintos. A question: considering the recent boom and bust of p2p lending in China, some have compared the recent rise of p2p lending and lack of regulation with the bubble that led to the financial crisis of 2008. What’s your take on regulation (or lack thereof)?


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: