P2P lending’s advertised rate is a gross figure before two costs unique to the asset class come out of it — borrower defaults and the platform’s servicing fee.
How it works
The expected default rate and platform fee rate are subtracted from the gross advertised interest rate to find the net return rate. Applying that net rate to the amount invested gives the expected net income.
What this does not include
This treats default rate as a flat, known percentage — actual defaults vary by loan grade, economic conditions, and platform underwriting quality, and can differ meaningfully from any single assumed rate, especially in a downturn.
How to use this calculator
- Enter the amount invested, the gross interest rate, the expected default rate, and the platform fee rate.
Frequently asked questions
Why is the advertised rate not the actual return?
Because the advertised rate is what borrowers pay before any losses from defaults or the platform’s own servicing fee are subtracted — the investor’s actual realized return is typically lower.
How is default rate estimated?
Often based on the platform’s historical default data by loan grade — a higher-risk loan grade typically carries both a higher advertised rate and a higher expected default rate.
Is P2P lending FDIC insured?
No — unlike a bank deposit, P2P lending investments carry real principal risk and are not covered by FDIC insurance, a materially different risk profile from a CD or savings account.
