What is the Normal Default Rate for P2P Lending?

P2P lending default rates

It’s no secret that peer-to-peer (P2P) lending has become increasingly popular in recent years. With the convenience of borrowing money from other individuals, it’s no wonder so many people are flocking to P2P lending platforms.

Investors who are considering investing in P2P loans might want to know how high the P2P lending default rates are to manage the default risk when investing.

Normal P2P lending default rates

The P2P lending default rate from borrowers on major Peer-to-Peer lending platforms is usually around 10% during normal market conditions.

When the market conditions are unfavorable, the default rates can spike. For example, some platforms experienced a doubling in default rates during Covid-19.

Often P2P lending platforms protect investors against loan default with a buyback guarantee. This guarantee is only as solid as the lending companies making the promise.

Examples of P2P lending default rates

Let’s take a look at some specific examples of default rates on some of the largest P2P lending platforms.

1. Mintos default rate

Mintos is the largest P2P lending platform in Europe. On this platform, the default rate ranges from 9-22%. The default rate can change over time and fluctuate with market conditions.

Usually, the default rate on Mintos is around 10%, but during the Covid-19 pandemic, the default rate spiked drastically to 22%.

This unusual surge reaffirms the volatile character of default rates. It demonstrates how world events and market situations considerably influence them.

Factors that influence the default rate in P2P lending

The default rate can vary depending on the creditworthiness of the borrower.

For example, borrowers with higher credit scores will typically have a lower default rate than those with lower credit scores. This is because lenders are more likely to approve higher-credit borrowers and are more likely to get their money back. Additionally, lenders tend to offer lower interest rates to higher-credit borrowers, which can also help reduce the default rate.

It’s also important to note that the default rate on P2P loans tends to be higher when the loan is for a longer period of time. This is because the longer the loan term, the more time borrowers have to default on their payments. Additionally, lenders may be more likely to lend to riskier borrowers when the loan is for a longer period of time.

Overall, the default rate on P2P loans is slightly higher than the average default rate on traditional loans. However, this rate can vary depending on the creditworthiness of the borrower and the length of the loan. It’s important to keep these factors in mind when considering P2P lending.