P2P Lending Calculator (Crowdlending Returns)

How it works

Net return ≈ interest rate − platform fee − default rate × (1 − recovery rate) · reinvested: value = amount × (1 + net)ʸ · withdrawn: value = amount × (1 + net × years) · break-even default rate = (rate − fee) ÷ (1 − recovery)

Peer-to-peer (P2P) lending and crowdlending platforms let you lend to consumers, small businesses or property developers in exchange for interest. The headline rate is never what you earn: some borrowers default, only part of that money is recovered, and the platform takes a fee. Subtracting the expected loss (default rate × loss severity) and fees from the interest gives a realistic net yield, and the break-even default rate shows how much worse defaults can get before you lose money. Unlike bank deposits, P2P loans are usually not covered by deposit insurance and can be hard to sell early.

Worked example

Lending 10,000 at an average 10% with 3% of loans defaulting each year, 30% recovered and a 1% platform fee: the expected loss is 3% × (1 − 0.30) = 2.1%, so the net return is 10% − 1% − 2.1% = 6.90% a year. In the first year that is 1,000 of interest minus 210 of default losses and 100 of fees. Reinvesting for 5 years grows the money to 10,000 × 1.069⁵ = 13,960.10, a profit of 3,960.10. Defaults would have to reach (10% − 1%) ÷ 0.70 = 12.86% a year to wipe out the return.

Sources: Wikipedia — Expected loss · Wikipedia — Peer-to-peer lending

Frequently asked questions