6 Peer-To-Peer (P2P) Lending Statistics For Basic Retail Investing • The Dumb Passive Income Blog
We’ve all been in that situation where we need to borrow money and the most obvious go-to for loans is from family and friends.
But what about from strangers?
Peer-to-Peer Lending works that way. It’s a way for people to borrow money from other people instead of banks. The loans are provided by an online platform that connects individual lenders with individual borrowers.
You could be one of those individuals lending money to someone you hardly know personally. Earning interest from different people you’ve funded while in the comfort of your home.
If you’re just a bit curious about P2P retail investing, we’ve prepared a few bite-size statistics for you.
1.) The First P2P Platform Was Established In 2005
Ever since its first ever launch by Zopa in the UK, P2P lending has come a long way since 2005. The US followed suit with the emergence of Prosper and Lending Club on the same year, which have already accumulated considerable levels of funding. Next thing we know, people are managing their lending as if they were their own local bank.
2.) The US P2P Lending Platform Market Size Amounted To $938.6 Million In 2022
An alternative option to traditional banking, this service is available to those who do not meet the criteria set by the banks. Essentially, it offers loans at a higher interest rate to high-risk borrowers while simultaneously providing the lender with a better return on investment compared to depositing their money in a bank.
Another contributing factor to the US P2P lending market’s growth of close to 8% in 2022 is mobile technology and internet access. It allows for online engagement between lenders and borrowers from anywhere without having to set up a physical location.
3.) Top 4 Reasons Why People Borrow P2P Loans
P2P lending platforms are an easy and convenient way to borrow money. Most of these conveniences attract borrowers: simplicity of the process, low interest rates, lenient credit criteria and requirements.
But the four most popular uses of P2P loans for borrowers are:
- Credit Card Pay Off
- Home Improvement
- Major Purchase
4.) Top 3 P2P Platforms In The US
Since the first peer-to-peer lending platform Zopa was founded in 2005 by UK entrepreneur David Nicholson. Some US platforms followed suit in the same year, and many have evolved differently from traditional banks with unique loan offerings and schemes typically available on them.
Here’s a snapshot of some of the largest peer-to-peer lending platforms in the US.
- Lendingclub Corp – LendingClub is one of the most popular peer-to-peer lending platforms that can help with personal loans. The company has issued over $70 billion in loans since 2007 and has over 40 million members to date.
- Upstart Network, Inc. -Upstart is a one-of-a-kind peer-to-peer lender that uses AI in its lending decisions, resulting in less defaults. After all, its founders are ex-Google employees. Unique features of the platform include funding criteria being adjusted based on borrowers’ education and experience.
- Prosper Funding Llc – Founded in 2005, it is the first ever peer-to-peer lending platform established in the United States. Aside from personal loans, it offers Home Equity Line of Credit (HELOC) as well as its very own Prosper Credit Card.
5.) A P2P Retail Investor Can Invest As Low As $25
You won’t be required to spend a huge amount of cash on capitalization to get started. Some platforms like Prosper allow you to get started with a minimum initial investment of $25.
6.) The Average Annual Return For A P2P Investor
Although some say it is between 5% to 7% annually, there are reports of double-digit ROI of more than 10%.
A P2P investor can manage risk by investing in loans from various borrowers, who are rated differently. In case of some of them default, there will still be remaining capital to lend again. That’s why a smart, P2P investor can potentially earn 10% a year or more with carefully selected loans.
Peer to peer lending is one of the most simple and effective ways I’ve ever found to make passive income. It has outperformed my stock picks, selling old baseball cards, my own business ideas – everything.
Peer-to-peer lending is one of the best ways to spread your investment risk and generate a steady stream of income for you. It’s an attractive option where you have a say on who you want to fund according to your personal judgement.
You can also get a high yield on your investment in a low-interest rate platform. That could be luck or it could be just a result of your discriminating selection of borrower profiles.