How does P2P Lending Work

Technically, peer to peer lending is not a new idea, but with the arrival of the internet, it has become much more convenient than it was decades ago. What crowdlending has done is to make lending and borrowing available to a broader audience.

In this post, we are going to cover how the P2P lending works.

How P2P lending works for investors

Peer to peer loans works for investors on two sides. An investor or a lender can read borrowers’ profiles and make a decision based on that what he or she knows if they want to make the loan.

The majority of crowdlending loans are funded by more than one lender or investor. There is usually a minimum amount to invest, but once you deposit your loan, you can select the amount for each loan. This is what is called diversification, which reduces your risk as an investor because if one borrower defaults –and there is always a possibility – you are mitigated from the loss because you have a number of other borrowers who are repaying your loan.

As the borrower makes the monthly payments, a percentage amount goes the lenders until the loan including the interest is fully paid.

How P2P works for borrowers

Peer to peer lending is usually an attractive alternative for borrowers who can’t or don’t want to borrow from traditional banks. While crowdlending platforms have a different process, they are all similar to this:

  • Go through a short series of questions, which is the soft credit check.

  • Based on the answers you have provided above you will receive a loan grade.

  • The investors can review your loan grade and inquiry for them to decide if they want to loan you money or not.

  • When a certain number of investors are interested in your loan, it will be approved for funding.

  • Borrowers provide documentation such as proof of income, employment, and current debts.

  • Borrower’s loan inquiry is reviewed to ensure the provided documents matches the information provided in step one. Lenders can ask for additional documentation.

  • Upon ultimate approval, the loan documents are sent to the borrower, who will be required to sign and return. Once this is done, the funds will be wired into the borrower’s bank account within 24 to 48 hours.

Most peer to peer lending websites allow all this process to be done online; the documents necessary can be emailed and scanned back and forth, therefore streamlining the whole process enormously.

Examples of the best P2P Lending Platforms in Europe

Europe is the frontrunner when it comes to crowdlending platforms, as the concept originated from the continent.


Mintos is the leading P2P platform in Europe, offering a huge quantity of loans to invest in. The platform gives both investors and borrowers exposure to a number of countries as well as several types of loans in each country to invest in. That means that you will have diversification for your loans to mitigate risks.

Mintos also offers decent returns to investors with an average of 12% per year. Moreover, the interface is quite easy to use and they also boast a great portfolio manager for users to set everything only once and let the platform do all the work for you. Most of the loans in the platform are protected by a buyback guarantee, meaning you will still get back your loans even if a borrower defaults.


This Latvian P2P platform was launched in 2018 but has grown to become one of the leading crowdlending platforms in Europe. But unlike other sites, the majority of loans available in Grupeer are attached to property development projects. The loans are also protected by a buyback guarantee, which is a nice assurance for investors. The site also features an auto-invest which is easy to set up and can invest in both real estate and peer-to-peer lending loans.


Crowdestor is a peer to peer marketplace lending platform based in Estonia with offices in the United Kingdom, Germany, Latvia, and Russia. It was founded in 2018 and since then, it has seen over 1,000 investors join.

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