Profit from peer to peer lending

Peer to peer lending
Peer to peer lending

Profit from peer to peer lending

Savings accounts are a bust. Most pay less than inflation. And if you learned anything from my post on “Make $245,415.60 from your $50/week side gig or hustle” it’s that if you earn less than inflation on your investment, your money is literally disappearing. But maybe peer to peer lending is an alternative?

If you don’t  fancy getting into real estate or playing dividend stocks, peer to peer lending is a viable alternative to get a solid rate of return. Often abbreviated P2P lending, micro lending is also P2P lending, but not all P2P lending is micro lending because the amounts involved can be larger in P2P. So, let’s talk about how you can profit from P2P lending!

As the name implies, P2P lending matches a suitable borrower with a lender. The company that runs the service will take care of a credit check on the borrower to make sure you’re not lending to a complete deadbeat. They also take care of servicing the loan — collecting repayments and forwarding those back to you with the appropriate interest. They act as a middleman — they don’t use their own cash to fund the loans, they use yours.

Of course, there’s no such thing as a free lunch. This is a higher risk investment than that lacklustre savings account. But in life we need to balance risk with reward. And P2P lending something you can do whilst sitting on your couch and earn a passive income.

How It Works

Borrower Profile

Peer-to-peer lenders will often lend to borrowers with lower credit scores than a bank would. Or tailor the interest rate to the profile of the borrower: an “A” profile would result in a lower interest rate than a “D” profile. This is good for both investors and borrowers.

Lending to businesses is also extremely popular in the peer-to-peer world. This gives a huge boost to businesses that would not meet the criteria for traditional bank lending. And as business loan interest rates are often higher than consumer loans, this gives you an opportunity to have a high rate of return.

Most peer-to-peer lending platforms allow you to buy a fraction of a loan, often called a “note”. So, say Bob wanted $1000 to buy a car, you might choose to lend Bob $50 of that.


Where this gets really interesting is when you have, for example, $250 to invest and you decide to give Bob $50, Sam $100 and Jane $100. Bob is a low risk investment because of his credit score, but his note only pays 5%. Sam is high risk due to his poor credit, but his note pays you back 15%. Jane has reasonable credit and her note pays you 7%. This allows you to build a portfolio that is diversified. You get the benefit of both the high, low and medium risk rate of return.

For reference, the weighted average return for the above scenario is 9.8%. In other words, our mix of imaginary low, medium and high risk loans would get you nearly 10% on your money. This isn’t too far from the truth with some of the peer-to-peer platforms in terms of what you can earn. If you imagine all of our imaginary loans started on the same day and ran for 5-years, you’d walk away with $1632.20 for every $1000 you invested. All whilst sitting on your couch.


Like many investments, there’s an element of risk. In P2P lending, the investor generally carries the risk of a borrower defaulting on their loan. This can either result in late payments to the investor or no payments at all. Therefore, you should never invest money that you couldn’t afford to lose! You can lessen this risk by spreading your money amongst several P2P platforms or directing your loans amongst multiple borrowers if the platform allows this.

Passive Income

The money you earn from P2P lending is completely passive. Your total time commitment is doing the research on which platform to use (we help you a bit with that below), transferring money to it and selecting which loans to back (if applicable). The great thing about passive investments is that you get to sit on your couch whilst making money!

P2P lending infographi
P2P lending infographic

Global Players

Below you’ll find some of the more prominent global players in P2P. This is not an endorsement.

United States

Lending Club

  • Lending Club is the biggest peer-to-peer lending network in the world and lends to consumers. They’ve issued $26-billion in loans to 1.5-million customers.
  • Higher default rate than competitors means more risk that you’ll not get repaid, which will lower your actual return on investment.
  • Offer a variety of accounts including retirement accounts, corporate accounts and trustee accounts for minors.
  • Minimum investment is $1000 and supports fractional investment in loans and lets you diversify.


  • Lends to consumers with upwards of $9bn of loans so far
  • Current rate of return is 8.01%
  • Allows you to diversify by choosing which loans you want to invest in with fractional investment.
  • Minimum investment is $25


  • Upstart is our least favourite platform as you have to be an SEC accredited investor to participate. This means a net worth of USD$1mm.


Lending Loop

  • Canadian player that only lends to businesses.
  • Runs a “marketplace” where you can see metrics from each potential investment and decide what to invest in.
  • Get started for as little as $25.

United Kingdom


  • UK P2P for consumer loans.
  • Claim they have a 0% default rate — every penny has been returned to investors. They’re also quick to caution that past performance isn’t an indicator of future performance.
  • Investor rates from 2.7% to 4.9% depending on term selected.

Funding Circle

  • UK P2P for business loans.
  • £2,555,244,977 in loans issued.
  • 7.2% return on investment at time of writing.
  • Has foreign subsidiaries including the U.S.


RateSetter Australia

  • Investor rates from 4.2% to 8.7% at time of writing.
  • Term as short as 1-month (i.e. get your money back in a month with interest pro-rated).
  • Invest as little as $10.

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