Instead of traditional banks, peer-to-peer lending platforms connect individual investors with borrowers. Investors fund small pieces of many loans. Borrowers pay interest and principal back each month. By spreading your deposit across dozens or hundreds of loans, you lower the risk of a single default wiping out your return.
Most platforms let you choose how much to lend per borrower. When you distribute deposits among many borrowers, a few late payments have minimal impact. Some lenders reinvest proceeds automatically, further diversifying over time. This calculator helps you visualize how regular contributions accumulate, assuming constant returns and an average default rate.
The model here treats your monthly deposit as an ordinary annuity. The future value of those deposits grows with compound interest but is reduced by defaults. Mathematically, the simplified equation is:
where is the monthly deposit, is the monthly interest rate, is the number of months, and represents the default rate.
Even highly rated borrowers occasionally fail to repay. The default rate reduces total returns because unpaid principal cannot be reinvested. Keep in mind that platform fees may also reduce the effective interest rate. Conservative investors often assume a higher default rate to avoid overly optimistic projections.
Suppose you deposit $100 every month at a 7% annual interest rate for three years. If you expect 3% of loans to default, the equation predicts how much you might accumulate. Plugging into the calculator yields an estimate that illustrates the power of compounding, even with a modest default rate.
Unlike savings accounts, peer-to-peer loans may be illiquid until borrowers repay. Some platforms offer secondary markets, but selling loans early can reduce returns. Interest rates may also fluctuate depending on borrower credit grades. The calculator assumes a fixed rate for simplicity, so treat results as an approximation.
While bonds and CDs provide predictable income, P2P lending offers potentially higher yields at greater risk. Stocks, on the other hand, can provide capital gains but may experience sharp swings. Use this calculator to see if P2P returns could complement your portfolio, but consider how defaults and fees compare with alternatives.
Most platforms charge servicing fees, typically a small percentage of each payment. These reduce the effective interest rate. Additionally, interest income is generally taxable, so factor this into your real-world ROI. The calculator does not include taxes or fees, so adjust the rate input to account for them if needed.
Many investors reinvest principal and interest payments each month. Over time, this snowball effect can increase returns significantly. If you choose to withdraw payments instead, your account will grow more slowly. The compounding effect in the formula assumes you reinvest at the same rate and deposit amount regularly.
Diversify across loan grades and borrower locations. Some platforms offer fractional shares of loans, letting you spread even a small deposit across many borrowers. Carefully read borrower profiles and avoid putting too much capital in a single loan. Conservative strategies favor short loan terms and consistent monitoring of your portfolio.
Use platform dashboards or your own spreadsheets to track actual returns. Compare them with the calculator’s projection to see how default rates and fees impact real earnings. Over time, you may adjust your strategy, perhaps increasing deposits or shifting to loans with different risk levels.
This calculator relies on a simplified compound interest model. Actual results depend on borrower reliability, platform policies, and market conditions. Past performance is not a guarantee of future results. Use this tool for planning and education, not as financial advice.
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