Basics
Understanding P2P lending: the basics for retail investors
How P2P investing works, where the return comes from and what risks sit behind it — a sober primer to get started.
P2P investing sounds simple: you lend your money through a platform to many borrowers and earn interest. Behind that simplicity sits a market with its own mechanics, its own players — and its own risks.
How P2P loans work
A P2P platform connects capital providers (you) with borrowers. You invest small amounts across many loans rather than funding one large loan alone. The platform handles credit checks, servicing and collections — for a fee, and without being liable for defaults itself.
The most important rule first: the platform is an intermediary, not a guarantor. You carry the credit risk.
Where the return comes from
The advertised interest is a risk premium. Higher returns mean higher default risk — not superior terms. Realistic net returns, after defaults and fees, are usually well below the gross headline numbers.
The central risk
No deposit insurance
P2P loans are not a savings deposit. There is no statutory deposit insurance. In the worst case you can lose your invested capital entirely — so diversify broadly and only invest money whose loss you can absorb.
Once you've internalised that, P2P loans can serve as a small, deliberately risky satellite within an otherwise broadly diversified portfolio — no more, but no less.