Is Peer-to-Peer Lending Safe?

In this ultimate guide you will learn all the risks that come with P2P lending and how to minimize them.

Is Peer-to-Peer Lending Safe?

Is peer-to-peer lending safe? That’s a very common question every P2P investor should be asking before they start investing in P2P loans. The safety of your P2P lending portfolio has a huge impact on your net returns.

In this guide, you will learn about the four major risk factors you need to be aware of when lending money for profit:

💡 P2P Lending Explained

You will also learn how you can evaluate the risk which will help you to improve the performance and increase the safety of your P2P investments.

Prefer to watch a video instead? Here are the most common P2P lending risks explained.

Platform Risk


Let’s start with the most important risk factor which is the ‘platform risk’. In fact, most European P2P investors who have lost their money have done so due to the fraudulent behavior of P2P lending platforms.

To put it simply: investors have been scammed.

What is the Risk of Using P2P Sites?

The platform risk is the idea that the platform itself is dodgy. So, rather than the borrowers pocketing your money and running for the hills, or the fluctuating market causing losses to your investment, platform risk is the idea that the platform itself is fraudulent. The unfortunate but likely outcome of this situation is that investors never see their money again.

Here are some examples: P2P lending sites like Kuetzal, Envestio, Monethera and Grupeer lured investors into high-yielding investments. The lack of regulations and transparency within the P2P lending industry allowed those platforms to build a ‘potential’ Ponzi scheme without anyone noticing.

Hang On… What’s a Ponzi Scheme?

Good question! A Ponzi scheme is an investment scam where investors invest money into fake projects while receiving ‘profits’ from recent investors. This scheme only works if the supply of new investments is higher than the demand for withdrawals.

Some of the above-mentioned platforms are already undergoing criminal investigations. The chances of these investigations resulting in the retrieval of investors’ money is, however, very slim.

How Risky is it to Invest on P2P Platforms?

The chances that you will run into a fraudulent P2P platform are actually quite high. Some companies do an amazing job at disguising themselves as legitimate lending platforms, and many remain in business for years before their fraudulent behavior is identified and they’re finally shut down.


Well, we don’t want to stop investing, so how do you whittle out the scammers?

There are many signs that a P2P lending platform might be a scam and we have created an in-depth article about how to spot a P2P lending scam, which will help you increase the chances to exit your investments before it’s too late.

⚠️ Avoid these 6 P2P Lending Mistakes


In our guide about how to conduct your own due diligence, you will find some of the best tips and tricks that we have learned over our many years as seasoned P2P investors.


If you are at all familiar with P2P lending platforms’ terms and conditions, you probably know that if a platform goes out of business, you still have the right to claim against the borrower. This means that the borrower, instead of the P2P lending platform, will pay the loan amount back to you. The payments will then be managed by a third-party law firm.

That’s the best case scenario.

In reality, and what actually happened with the above-mentioned platforms, is that users invested into fake projects, and therefore there weren’t any actual borrowers in place. And, of course, no borrower means investors aren’t able to claim any payments at all.


If you ever find yourself in a scenario like this one, you will want to join a lawsuit, usually led by a few individual investors. There are currently several Telegram groups where investors discuss legal steps against fraudulent P2P lending platforms.

Been affected? Check out the following groups:

We’re sorry to be the bearers of bad news, but it is also worth noting that if you’re at a stage where you need to join a lawsuit to claim back your investments, the chances of retrieving your money are very small.

How can You Minimize the Platform Risk?

Read the platform’s terms and conditions before you sign up. Look for red flags like the option to change the T&Cs at any time without prior notice or the absence of the clause that states that investor’s funds aren’t the property of the platform.

Read about what would happen should the platform go out of business and do your own due diligence about the platform’s employees. Research the CEO to find out whether they have been involved in any kind of financial fraud or whether they or their relatives have been accused of money laundering.

Tip: Prioritize the safety of your investments over the potential generation of returns. All of the above-mentioned fraudulent platforms offered a high interest of up to 21% per year. When the promised returns seem too good to be true, unfortunately, they probably are.

While no investor is able to eliminate this risk completely, our P2P lending reviews will certainly offer useful tips that should help you identify fraudulent platforms.

Learn more in our guide about platform diversification.

Loan Originator Risk


Loan originators (or loan companies) are non-banking lending providers, and while German legislation states that lenders must have a banking license to lend money, this isn’t the case in most other European countries. The lax laws surrounding money lending on P2P platforms often means that those borrowing money on P2P platforms are businesses and individuals who are not eligible for funding from the bank.

Here are a few examples of situations in which businesses and individuals would choose to borrow money from non-banking lenders:

Who lends money from non-banking lenders?

  • Businesses that are in early development without any substantial track record
  • Businesses that need fast money to pre-finance a client’s project
  • Real estate developers that need additional funding to finish their real estate project
  • Borrowers who need money to fulfill their consumers’ needs
  • Borrowers who need money to pay for unexpected expenses

These are only a few reasons why people might prefer to lend money from non-banking lenders. One really crucial reason too, however, is that the borrowers were declined by the bank due to low credit score.

More about this in our borrower risk section.

P2P Lending Marketplace vs. Traditional P2P Lending Platforms

P2P lending marketplaces differ from traditional P2P lending platforms. Rather than lending money directly to borrowers, investors on P2P marketplaces do so indirectly, through loan originators. This increases investors’ diversification options, as the marketplace can offer more investment opportunities than a typical P2P lending site that lends directly to borrowers.

While P2P lending marketplaces might help with diversification and the increased availability of loans aids diversification, it bears another risk to the investor.

What is the Loan Originator Risk?

The risk here is that the loan originator might go bust.

This risk factor needs to be considered when choosing which loans from which loan originators to invest into.

We, at P2P Empire, help investors like you evaluate the platform risk, however, evaluating the loan originator risk is a completely different topic, which you as an investor should bear in mind before investing on any P2P marketplace.

How Risky is the Loan Originator Risk?

This risk is very real as we have already seen a few individual loan originators leaving P2P marketplaces in the past. On Mintos, for example, it’s common practice for loan originators to leave the marketplace. In some cases, the lenders pay all of their borrowed money back to the investors, but in other cases, the P2P marketplace has to find a way to retrieve at last part of the loan repayments for the investors.

Past experience shows that this is a very long-lasting process that might not yield the expected results. There are various reasons why a loan originator ceases business. One can be the loss of their necessary license.

For instance, the Central Bank of Kosovo revoked lenders’ business licenses. Companies that had their licenses revoked include IuteCredit and Monego.

Peachy, Aforti, Eurocent, Rapido and Metrocredit are further loan originators that ceased their operations, causing investors a whole load of grief.

The recovery of investments might take several months and some of them may default. This was the case with Aforti. Luckily some P2P marketplaces like Mintos share the recovery status of these loan originators to keep investors in the loop.

How can You Minimize the Risk a Loan Originator can Pose?

This is not an easy question to answer, and there’s no way you’re able to eliminate the risk completely. In fact, it is much harder to minimize the risk a loan originator poses than it is to minimize that of the platform itself.


Most of the loan originators operate in foreign countries with different laws, different reporting standards, different credit scoring, different debt collection procedures and, most importantly, different consumers.

You, as an investor, are unable to evaluate the lender’s business model. In some cases, a loan originator will even be part of a bigger financial group.


One thing you can do, however, is google the loan originator’s parent company and have a look at their financial reports. In most cases, these reports are also audited which should give you a good idea about the profitability and assets of the financial group.

Also, have a look at the company’s track record - the owners as well as the CEO of the company. If you don’t find any suspicious information it’s a good sign.

Note that this is only possible for known financial groups. There are plenty of loan originators which are private companies that do not publicly list their financial reports. You might also come across old reports or information that isn’t translated into English.

Performing thorough due diligence on the loan originator isn’t easy and it can be very time-consuming.

Borrower Risk


Let’s move on to the borrower risk, which is effectively the risk of default that comes as a result of the borrower being unable to repay their debt.

What is Borrower Risk?

While the majority of borrowers are able to repay their loans, there will always be some that will struggle to do so. For example, job loss during a financial crisis might be one reason why borrowers are unable to repay their debts.

How Risky is Borrower Risk?

This risk partially depends on the quality of the conducted credit check by the loan originators. Many lenders have their own system that determines whether a borrower is eligible to borrow money or not.

The extent of borrower’s risk also depends on whether there is a buyback guarantee in place, and what the default rates are.


Some of the main criteria that borrowers have to pass are:

  • Evidence that they have a regular income
  • Details about their job role
  • Their monthly expenses, including other debts they might have
  • Number of people living in the same household

Based on the above-mentioned criteria (as well as some additional bits), the lender will decide whether the borrower is eligible for the loan, and if so, how much the borrower will need to pay in interest. Typically speaking, the higher the risk of default, the higher the interest.


Loan originators usually invest 5% - 15% of their own funds into every single loan, which is often enough motivation to do their best to collect the debt. Every loan originator has its own debt collection process and, in most cases, you as an investor are not involved in it.


Some of the loan originators also often have a buyback guarantee, meaning they will repurchase the investor’s claim against the borrower as soon as the borrower is late with their payments by more than 60 days. This will, however, only work if the loan originator has enough money to cover the potential defaults. Learn more about the buyback guarantee here.

If there’s no buyback guarantee involved in the agreement, the debt will be sold to a debt collection agency and the investor might retrieve part of it back.


Depending on the loan originator the default rates are typically between 5% and 10% during the normal market conditions. It’s likely that the default rates will increase during a recession. This is something you as an investor should account for.

How can You Minimize the Borrower Risk?

You can minimize borrower risk by investing in different loan types. Consumer and microloans aren’t the safest to invest in. Those loans aren’t secured by any collateral which makes them riskier.

If you invest your money in loans, backed by a mortgage, your investments are secured by a property, which will always have some value. A private individual is able to go into bankruptcy, while it is very unlikely that a property will lose all of its value.

There are two obvious downsides to investing in real estate loans, and these are that the initial amount is typically higher than the average loan amount, and the loans often come with low liquidity rates. You can start investing in real estate loans from €50 while consumer loans are available from a minimum investment of €5.

While platforms like EstateGuru and EvoEstate offer a secondary market, which will help you to liquidate your investments, the loan terms are usually at least 12 months which, needless to say, is considerably longer than the short-term 30-day consumer loans.

Here you will find a list of all real estate platforms that offer property-backed loans.

Market Risk


If there is one risk that you cannot influence at all; it's the market risk.

What is Market Risk?

Market risk is an external macroeconomic factor. This risk also includes country risk, currency risk, and political risk. (Yep, that’s a lot of risk!)

All the above factors might influence the demand for P2P investments as well as the supply of P2P loans.

How Risky is Market Risk?

During normal market conditions, where the economy is growing, the market risk isn’t something you as a P2P investor will notice. This, however, doesn’t mean that there isn’t any.


A sad example of the market risk is the COVID-19 virus, which impacted everyone globally. This virus caused the closure of many businesses, travel restrictions, and medical issues which caused an economic downturn. The stock market plummeted and the demand for liquidity increased.

P2P investors were affected as well. Two P2P lending sites -Monethera and Grupeer - could not handle the pressure and ceased their operations. Investors suddenly stopped investing in P2P loans which caused a shortage of funding.

Platforms needed to lay off a significant amount of employees in order to secure the financial health of the company. We’re still in the midst of the pandemic now, and it’s looking likely that many loan repayments from borrowers will be delayed and some of them might default.

With the above mentioned P2P lending scams that caused the loss of millions of euros, the P2P lending sector certainly faces the biggest challenge since its inception more than 10 years ago.

How can You Minimize the Market Risk?

The best way to minimize market risk is to ensure your portfolio is well-diversified across various asset classes. The most successful investors aim to keep 5% - 15% of their investments in P2P lending. The rest is diversified across real estate, stocks, ETFs, cryptocurrencies or commodities.

Another way to diversify your investment portfolio is to invest in yourself or in your business. Often this type of investment yields the highest returns.

How to Increase the Safety of Your P2P Lending Portfolio

If you managed to read up to this point, congratulations! It is a lot of information to digest and for many readers, it’s likely this was an eye-opening article.

And that’s totally OK! It takes time to learn how P2P lending works.

So, is Peer-to-Peer Lending Safe?

P2P lending is as safe as any other investment if you are aware of the risks, and take the necessary precautions. Here are a few tips that you could follow in order to increase the safety of your peer-to-peer investments.


  1. Read our peer-to-peer lending reviews with the latest news and offers from popular P2P lending sites
  2. Do your own due diligence about every peer-to-peer lending platform
  3. Do your own due diligence about individual loan originators
  4. Diversify across legitimate P2P platforms , loan types, countries and loan companies
  5. Don’t be greedy. If an offer looks too good to be true, the risk of losing the sum of your investments is too high. Think twice!
  6. Invest long term and avoid impulsive sell-offs if you don’t have a good reason for it
  7. Invest only what you can bear to lose
  8. Follow our Twitter and Facebook page, to get notified about news from the P2P lending space - this might help you to spot potential P2P lending scams before it’s too late

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To increase the safety of your peer-to-peer lending portfolio, it’s important to follow all of the above-mentioned points.

We at P2P Empire believe that our readers should be fully educated about all aspects of P2P lending, including the safety of peer-to-peer lending, in order to make good investment decisions. That’s also the reason we launched our P2P lending academy that includes all of our knowledge gathered in the last few years.

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