Peer to Peer Lending advantages and disadvantages

I have been an investor in P2P lending for 3 years now and here I share my Peer to Peer Lending advantages and disadvantages with you 🙂

In the below, I have used Mintos as an example, as they are the market leader in Europe and the winner of the AltFi price “Peoples choice” in 2016, 2017, 2018 and 2019. 

First a summary…

Peer to Peer Lending advantages and disadvantages

Advantages (Pros)


Disadvantages (Cons)


★ Stable and predictable returns
★ High returns (10-15% annually)
★ Great asset class for diversification
★ High control of the investment
★ Easy to handle
★ Auto invest with little time involved
★ Low barriers to entry (1 EUR minimum, no fees)
★ Lower risks using buyback guarantee
★ Current trends and future estimates are very promising
★ Lending directly to peers (borrower) is like helping people out

✘ Sometimes less liquidity than stocks,
index funds or bonds because of long time horizons
✘ Not secured by any government guarantee
✘ The asset class haven’t been around for a long time
(since 2005 in Europe)

Okay… Let’s look more into
the Peer to Peer Lending advantages and disadvantages

Read more


The advantages of P2P lending

Stable and predictable returns

It is my experience that you get some fairly stable returns with peer to peer lending although some loans are delayed (late paid).


Here are my returns at Mintos during 2018 and 2019


It’s on average 1,15% per month,  with 100% buyback guarantees and 10-20 EUR in each loan. 

Usually, the platforms offer many similar loans with the same interest rates. This makes the return more stable and predictable.

In comparison, changed my index fund “Sparindex INDEX OMX C25 KL” much during 2018:


OMX25 2018

💡 Curious about Mintos? Read my review


High returns


I expect between 11 to 15% annually from my entire p2p lending portfolio.

Right now, I use 5 platforms that are all located in Europe.


I’m very pleased with the returns. In 2018 I got +13.75% in return at the platform Mintos. In 2019 it was +12.63%

If I compare with my investment in two index funds then I expect around 8 to 10% annually and this is the in long-term because it fluctuates.

In real estate crowdfunding, I also expect around 8 to 10% in profit annually after management expenses are deducted. Additional returns are made if a property is sold. Some platforms offer, even more (up to 22%), but under some high-risk conditions.

Picking stocks is not something I do. It’s very complex (in my opinion) because it requires a good insight into the company and the industry’s development. You can yield a higher return but I personally feel a greater instability in this form of investment and it’s not a passive investment.

So there really is an advantage when looking at Peer to Peer Lending advantages and disadvantages.

Great asset class for diversification

Although many platforms offer good diversification within the platform itself, I still recommend using at least 3-4 platforms.

If a major unexpected event occurs (hopefully not) then all your investments are better distributed. There are many good opportunities in the EU.

Within each platform you also have diversification. You can select specific criteria such as countries, loan types, and loan originators. This is really great to minimize your overall risk.


💡 Check out the platforms from Europe

But… how much should I invest in P2P lending? 


Out of my investment portfolio, P2P lending is approx. 40%.

This is a relatively large proportion, but I feel a very good understanding of this form of investment in relation to other investment opportunities.

So far, I have only had really positive experiences. I have carefully selected platforms, loan types etc. and made sure to have a good setup.

However, I don’t recommend that you invest exclusively in P2P lending. There are also other good investment opportunities that can provide a good return and minimize your risk. I also like especially index funds and real estate crowdfunding.

Well, let us come back to the topic: Peer to Peer lending advantages and disadvantages 🙂

High control of the investment

Everything is relative but you are well informed with all the details about the borrower, the loan originators, the loan terms (agreement) and what to expect in return.  

You can set up several loan strategies (auto investment) and change priorities as you wish.

In contrast, the stock market you can’t control it in the same way. 

Easy to handle in your daily life

I log in once a month on the platforms and sometimes I make small adjustments in my auto investment setup. Every month receive payments of principal and interest as the borrowers repay their loans.

I also rebalance the portfolio if there are too many loans with a single low rated loan originator. 

For example, I had removed Capital Service (at some point) because I had too many loan agreements with them. Just one click and it was done.


Mintos portfolio rebalance

Capital Service has only a C+ rating while Mogo has from A to B in rating. That is also why Mogo takes up a larger portion.

The size changed significantly in just 1 month after I adjusted the auto investment.

Lower risks using buyback guarantee


buyback guarantee​I have used the buyback guarantees unconditionally. It has always been important to me, as I thereby have another protective layer over my investments.

It was actually one of the biggest factors that made me become an investor. I see it as a huge advantage in peer to peer lending.

This gives a lower risk, but you still need to look more closely at the risk-reward ratio (how much your potential reward is).

Low barriers to entry (1 EUR minimum, no fees)

When we talk about Peer to Peer Lending advantages and disadvantages then this is obviously a great advantage.  

Everyone can participate and invest. You can start from only EUR 1 at Fast Invest and EUR 10 at Mintos. Mostly no fees at the platforms in Europe.

Other P2P platforms are the same.

This also means that you only need to have a little money invested in each loan agreement. Thereby you can diversify your investment even more 😎

Furthermore, it’s also very easy to sign up and start to invest. You just need to be at least 18 years old and provide basic information about yourself.

Current trends and future estimates are very promising

P2P lending in Europe has exceptional growth in recent years (92% in 2015). 

Right now Mintos has, for example, over 100,000 investors and expect more than 300,000 within a few years. 

Generally, the platforms are becoming increasingly popular and more investors have seen this opportunity.

I believe that within the next 5 years, P2P lending will be so established in Europe that there will be more regulation to ensure our investments. 

P2P lending has been in Europe since 2005 but it just takes a very long time for a new asset class to establish itself.

There will probably be greater confidence and knowledge about the platforms when they have shown a longer track record.

Lending directly to peers (borrower) is like helping  people out


You help a person or business that needs some money in their situation.

Of course, this gives you a return, but you have still helped some who asked for a loan.

It is probably the least-ranked of the peer to peer lending advantages and disadvantages but it’s truly a modern way of thinking about lending.

The disadvantages of P2P lending

There will always be more advantages than disadvantages, otherwise, it will not be a particularly attractive investment opportunity.

Here are some of the disadvantages (cons) of peer to peer lending.


Sometimes less liquidity than stocks, index funds or bonds because of long-time horizons


Your cash flow depends on your loan agreements. Most often, it is impossible to get the money out of the agreement ahead of time.

That’s why some investors stick to short-term loans (30 days), as they thereby ensure that the money will be returned quicker. 

This is an advantage if you have less confidence in the platforms or peer to peer lending as you can withdraw the money faster. 

However, there may be quite a big drawback in this strategy. You risk having more late paid loans where your money does not yield a return at all.

There is a big difference in the borrower’s access to 30-day loans than a larger loan (like a mortgage) with a longer-term.

I prefer a mix and am willing to borrow up to 72 months. My investment portfolio, in general, has a very long-term focus. It is part of my 7 steps plan to achieve financial freedom within 10 years.

Not secured by any government guarantee


In Europe, there is good regulation of the loan originators and how companies must handle money transfers.

However, there is very minimal regulation in relation to the peer to peer lending platforms.

The European Parliament is looking into this already and I believe within a few years we will see some regulation to protect investors.

I look positively forward to greater regulation so we are better protected in eg. a financial crisis.

The asset class hasn’t been around for a long time (since 2005 in Europe)


As mentioned Peer to Peer lending has been in Europe since 2005.

It takes a long time to establish this new asset class as a recognized and credible investment opportunity. Many platforms started within the last 5 years. This is not a long time in the investment world.

Today, this form of investment is taken more seriously but it still hasn’t been around for that long.

The positive development came especially after the financial crisis in 2008.

With technological advances and the development of the Internet, this has become even more relevant.

That’s it. 
I hope you liked this Peer to Peer Lending advantages and disadvantages. I will update this blog post continuously like the rest of my blog.

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Peter Michael

I'm an investor and the blogger behind My Investment Blog. I write about investment, financial independence, personal finance, and personal development. I try to combine the topics and show my journey towards financial freedom.

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