Peer-2-Peer Lending vs Bonds

P2P lending has earned a reputation as an attractive investment opportunity with a relatively moderate risk level. 

There are good reasons for it. 

P2P lending allows for building a steady passive income, diversifying your portfolio, and contributing to the businesses you see important to society. 

Still, a smart investor always keeps an eye open for other opportunities, right?

So, no wonder we see that many readers are curious about how bonds work compared to P2P. 

At first sight, bonds may seem like a more reliable option. Just think about what your first associations are. Bonds: 

  • exist longer than P2P lending, thus, must be more reliable. 
  • imply an investment to large companies or even the government. Which makes them even more reliable. 

Most people indeed believe that bonds are a safer and more profitable investment. 

But the news is, they are not. Especially given today’s volatile financial climate.

Ready to break your financial stereotypes, if any? Then let’s get straight to business.

P2P Lending vs Bonds: Similarities

We assume that if you are reading this article, you must be aware of what is P2P and what bonds are. But just for the sake of clarity, let’s refresh those definitions. 

P2P lending connects investors directly with the borrowers seeking loans on P2P websites. It allows lending to individuals and small businesses for various purposes. 

Bonds are loans from investors to large corporations or even governmental companies. 

So, the principle underlying both notions is the same: lending your money and getting some interest in return over a set period of time. 

As to the differences, there is a lot more to say.

P2P Lending vs Bonds: Differences 

Duration: on average can be a couple of months to three years for a P2P loan and 10-20 years for bonds. 

Payments regularity: with P2P, you receive a monthly instalment, while bond issuers pay annually or semi-annually.

Returns rate: most P2P platforms offer 5-10% return rates, for corporate bonds the average returns are 3 to 5%.
The returns from both investment options are taxed unless you are using an IFISA, Innovative Finance Individual Savings account.

Why is P2P lending a better investment decision than bonds?

Security and Profitability 

Now that we have laid out the three core differences between the two investment options, it’s time to reason which is a better one. As the paragraph title suggests, we stick to P2P lending, and here is why.  

First and foremost, the average loan investment period plays a big role. Having your capital frozen for 10 years is a very long time. 

It may seem that with bonds, there is less chance of rapidly losing the funds at once. But in fact, there is a good probability that your investment will be slowly “eaten” by the rising prices over time. 

While on P2P platforms you can choose the loans with a pay-back term you feel comfortable with. 

Secondly, with the P2P market rising, the P2P platforms care a lot about security guarantees to win more investors. 

You can pick a loan from various risk categories and check the creditworthiness of the borrowers. Some platforms also offer buy-back guarantees: a commitment to repay the debt in full, in case the borrower goes bankrupt. It’s usually done within 60 days or so. 

Some platforms, such as HNW Lending, have introduced new security regulations. 

Its directors co-invest in every loan and are responsible for the first loss positions. It means that if the loan isn’t repaid by the borrower, they lose their money before other investors do.

Naturally, it doesn’t eliminate all the risks, but at least it gives you some instruments to reduce them.

These and other P2P platform features provide more transparency compared to bonds.


Investing in bonds or stocks implies using some third-party services. It can be a bank or a stockbroker.

While with P2P lending, you can register on the P2P platform yourself, open an account, transfer some cash, and get the ball rolling with investing. Anywhere and anytime. 

You can start with small amounts you can afford to test the waters.

Investing in bonds, on the other hand, requires a certain sum of initial investment, which is rather high. 


The market of products and services is so abundant today that we, as consumers, have grown to be conscious. 

We tend to support local businesses to support the communities. 

We need to know if the goods or service provider respects the workers’ rights and cares about the environment. 

Large corporations rarely feel relatable, it’s difficult to feel some connection to them. 
Yet, helping a promising business make it to the market and do some good in society, — feels rewarding.

Key Takeaways

The main cons that make bonds look far less attractive than P2P lending include poor liquidity and low returns, especially considering the large amount invested initially.  

As much as P2P lending outperforms bonds in many aspects, it still carries a lot of risks. After all, a simple loan default happens more often than a big corporation goes bankrupt. 

That’s why a big part of becoming a successful P2P investor is learning to manage the risks.

But with the risks come higher yields, steady monthly cash flow, and user-friendly platforms. 

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