STEP 01
A borrower seeks financing. This can be an individual or a business that applies for a loan.
What Is Peer-to-Peer (P2P) Lending?
Peer-to-peer lending lets investors earn interest by funding loans through an online platform. Learn how it works, the key terms, and the risks involved.
P2P lending in plain terms
Peer-to-peer (P2P) lending is a form of lending in which individuals fund loans to other individuals or businesses through an online platform, instead of a bank acting as the lender. Investors earn interest as borrowers repay their loans, although returns are not guaranteed and capital is at risk.
On many European platforms, a lending company known as a loan originator issues the loan first, and investors then acquire claim rights to it.
How peer-to-peer lending works
In practice, P2P lending connects investors’ capital with individuals and businesses that need to borrow. The process typically follows three steps:
STEP 02
The loan originator assesses the application, issues the loan, and then makes it available to investors on a P2P platform.
STEP 03
Investors who choose the loan fund it and receive interest payments as it’s repaid.
If the borrower pays late or defaults, repayments can be delayed or lost.
While the P2P lending model isn’t new, some platforms offer automated tools that select loans based on criteria the investor sets. On Hive5, this tool is called Auto Invest. For a step-by-step guide to investing on Hive5, visit the How it Works page.
Types of P2P lending
While the funding model is broadly similar, the peer-to-peer lending market covers three main categories:
Consumer loans.
This is personal financing issued to individuals to cover everyday expenses, large purchases such as vehicles, or debt consolidation.
Business loans.
This is capital borrowed by companies, which may be used for daily operations, inventory, or expansion.
Key terms to know
The P2P lending definition covers the basics, but there are also a few key terms worth knowing.
Claim rights.
The legal entitlement to receive principal and interest repayments from a specific loan. You can find full details on our How it Works page.
How it Works page
Loan Originator.
A lending company that assesses borrowers, issues loans, and then offers them to investors on a platform. You can find more details in our Loan Originators section.
Loan Originators sectionBuyback Obligation.
A contractual commitment by a loan originator to repurchase a loan from investors if repayments are overdue for a set period. On Hive5, eligible loans may include a buyback obligation after 60 days overdue. It is an obligation of the relevant loan originator and depends on its ability to perform, as explained on our Is P2P Lending Safe? page.
Is P2P Lending Safe? pageNet Annual Return (NAR).
The actual return a portfolio has earned over a year, calculated using the exact timing of every cash movement in the account. This is explained in detail on our Returns / NAR page.
Returns / NAR pageBenefits of P2P lending
For investors looking to expand their strategy beyond traditional banking products, P2P lending can offer the following potential benefits:
Potential for higher returns.P2P loans often carry higher stated interest rates than standard savings accounts, reflecting the higher level of risk involved. Returns are not guaranteed.
- Low barrier to entry.
Many platforms let investors start with a small amount of capital, so they can try P2P lending without a large financial commitment.
- Portfolio diversification.
P2P loans can add a different asset type to a portfolio of stocks, bonds, and real estate, because consumer and business credit markets may not always move in line with other financial markets. Diversification can help spread risk, but it does not eliminate it.
Risks of P2P lending
While P2P lending offers potential benefits, such as higher interest income, your capital is at risk. P2P loans are investments, not bank deposits, and the main risks include:
Loss of capital.You could lose part or all of the money you invest, and deposit guarantee schemes do not apply.
- Late payment and default.
Borrowers may pay late or stop paying altogether, which can delay or reduce your returns.
- Loan originator risk.
If a loan originator runs into financial difficulty, it may be unable to service its loans or meet its buyback obligations.
- Limited liquidity.
You may not be able to exit an investment before the loan matures, so your money can be tied up for the full loan term.
For a full explanation, see our Is P2P Lending Safe? page.
Where Hive5 fits in
Hive5 is a loan investment marketplace where investors acquire claim rights to already-issued loans offered by loan originators. Investors can start from €10 and build a portfolio over time, either by selecting loans manually or by using Auto Invest.
Hive5 is not a bank and does not hold a financial-services licence. Investments on Hive5 are not covered by a deposit guarantee scheme, returns are not guaranteed, and capital is at risk.
To learn more about how the platform works, visit the How it Works guide. You can also see which companies supply loans to the marketplace on the Loan Originators page.
Hive5 is particularly attractive to investors who value a low entry point, a choice between short-term consumer loans and longer-term business loans, and the ability to automate their strategy through Auto Invest. Some investors appreciate the regular repayment cycle of short-term loans, while others prefer longer maturities with potentially higher interest rates.
Frequently asked questions
Peer-to-peer lending, also known as marketplace lending, is a way for individuals to fund loans to consumers or businesses through an online platform. Investors earn interest as borrowers repay their loans, but returns are not guaranteed and capital is at risk.
A savings account is a bank deposit. In the EU, bank deposits are generally protected by a deposit guarantee scheme up to €100,000 per depositor, per bank. P2P lending is an investment: you earn interest as borrowers repay their loans, but deposit guarantee schemes do not apply, returns are not guaranteed and your capital is at risk.
Claim rights are contractual rights connected to a loan receivable. When you invest on Hive5, you purchase claim rights under the applicable Investment Agreement rather than lending money directly to the borrower. The exact rights and obligations are described in the relevant Investment Agreement.
A Loan Originator is a company that issues loans to borrowers and may make claim rights to those loan receivables available to investors through Hive5. The Loan Originator remains responsible for the obligations set out in the relevant agreements, including any applicable Buyback Obligation.
The Buyback Obligation is a contractual obligation of the relevant Loan Originator. If a payment is delayed for more than 60 calendar days, the Loan Originator is required to repurchase the relevant claim rights together with accrued interest, in accordance with the Investment Agreement. It is not a deposit guarantee and depends on the Loan Originator’s ability to meet its obligations.
Not exactly. Both connect investors with borrowers through an online platform, but on Hive5 investors acquire claim rights to loans that Loan Originators have already issued, rather than funding a new project directly. Based on the current legal assessment of its business model, Hive5 does not require authorisation as an ECSP crowdfunding service provider.
You can start investing on Hive5 from €10. Starting with a small amount lets you see how the platform works before deciding whether to invest more. Capital is at risk.
Start investing in loans with €10.
Trusted by more than 30 000 investors across the world.
Start investing
Investing in loans involves risk, including the risk of partial or total loss of your invested funds.