Lending

Reasons to Invest

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Protection and benefits

Some sites have contingency funds to protect investors if borrowers default on loans.

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Higher rates of return

It’s possible to access a much higher rate of return than is currently available from other investments, such as deposit accounts or bonds.

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Flexible risk level

You can choose the level of risk you’re prepared to accept in terms of the profile of the borrowers you lend money to.

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Protection and benefits

Some sites have contingency funds to protect investors if borrowers default on loans.

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Higher rates of return

It’s possible to access a much higher rate of return than is currently available from other investments, such as deposit accounts or bonds.

Real Estate Lending

Investors often lend money to borrowers to develop real estate projects like flipping houses, commercial fit outs or other residential projects.

Avg Annual Returns

5 - 12%

Time Horizon

6 - 36 months

Small Business Lending

Money is borrowed by small business operators to help them grow their business.

Avg Annual Returns

4.5 - 11%

Time Horizon

12 - 60 months

Highlights

Good For

Passive income + Helping others

Default Rate

Low (or <3%)

Liquidity

Liquid

Diversification

Peer-to-peer lending connects borrowers directly to lenders (investors), who loan money to qualified applicants. Peer-to-peer lending has three competitive advantages: First, it enables more people and businesses to get funding. Second, by cutting out the bank middleman, peer-to-peer lending allows investors to pocket more of the interest paid by borrowers. Third, peer-to-peer lending can provide other benefits, such as the feel-good benefit of knowing your money is helping another person or small business thrive.

Invest in "notes", which are fractions of loans.
avg

5-12%

Avg Annual Returns

Past 10 years

Ways to Invest

Risk Analysis

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Risk Analysis

An investor's Risk Score will be dependent on the loans selected to invest in. These can vary between lower and higher risk, with returns that reflect this. Many sites encourage investors to diversify their risk by spreading investment dollars across multiple borrowers. This way, you're less at risk of a single default taking out your entire investment.

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Compared to:

Residential Real Estate

Low

12

Gold

Low

13

Drawbacks

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    Drawbacks

  • There's always a risk that a borrower will default on their loan. If they don't repay their principal, you lose your investment.
  • The lending investments with the highest returns are on loans with high interest rates. These types of loans are usually offered to borrowers with questionable credit, meaning the higher the potential return, the more risk you're shouldering.
  • Different states have varying laws regarding peer-to-peer lending, so certain lending investments might not be available to you depending on where you live.
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How You're Taxed

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How You're Taxed

Income Tax

Income Tax

Profits earned from P2P Lending are taxed at ordinary income tax rates. This means that profits are added to your total income for the year.

You can receive income from P2P lending tax free if you invest using certain accounts.

Did You Know?

  • poitStarPeer-to-peer lending platforms began popping up around 2006 with the launches of Prosper and LendingClub. As of 2022, the industry is nearing a market size of $1 billion and is expected to grow by 31% annually over the next four years.
  • poitStarBy cutting out intermediary financial institutions and connecting borrowers directly to investors, this form of lending has created loans that are often more efficient, more accessible, and less costly than traditional loans.
  • poitStarWhile P2P loans, as an asset class, are correlated with some macroeconomic trends—particularly unemployment—research has shown a very low correlation between P2P loans and other asset classes.

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