Peer-to-peer (P2P) lending lets individual investors fund personal loans directly, in exchange for a share of the interest paid back. It launched around 2005 and once had a competitive field of platforms, including Prosper, LendingClub, Upstart, and Funding Circle.
That field has narrowed sharply. Prosper is currently the only major platform in the U.S. still offering individual retail investors the ability to fund personal loans directly. LendingClub exited retail P2P investing in December 2020, converted into a full bank, and rebranded as Happen Bank in 2026. Upstart and Funding Circle do not offer retail investors the ability to buy into individual loans the way Prosper does. If you're researching P2P lending as an investment in 2026, Prosper is effectively the option.
How Peer-to-Peer Lending Works
A borrower applies for a personal loan through the platform for reasons like debt consolidation, home improvements, medical bills, or major purchases. The platform reviews the application, assigns it a risk grade based on creditworthiness, and lists it for funding.
Investors browse available loans, or use an automated tool that invests based on preset criteria, and commit funds to portions of a loan called notes. On Prosper, the minimum investment per note is $25, which makes it possible to spread money across many loans instead of funding one loan entirely.
Once a loan is fully funded, the borrower makes fixed monthly payments consisting of principal, interest, and any applicable fees. Investors receive their proportional share of each payment, deposited directly into their investment account.
Who Can Invest
To invest on Prosper, you need to be a U.S. permanent resident or citizen, at least 18 years old, with a valid Social Security number and a checking or savings account. Some states require you to meet additional financial suitability requirements, generally tied to income or net worth, before you're allowed to invest. Not every state permits Prosper investing, so eligibility depends on where you live.
Prosper offers both general taxable investment accounts and IRA accounts through third-party custodians.
How Investors Make Money
Every time a borrower makes a payment, investors receive their proportional share of the interest and principal. Historical Prosper returns have generally ranged from about 3% to 8% annually, depending on the risk grades of the loans an investor holds.
Loans are graded by risk, from lower-risk grades with smaller expected returns and lower default rates, to higher-risk grades with larger expected returns and higher default rates. Diversifying across many notes and multiple grades is the standard way investors manage that risk.
How the Platform Makes Money
Platforms typically charge an annual servicing fee based on the amount an investor has outstanding in loans. The more you have invested, the more the platform earns in fees, and the more you pay.
Why Investors Consider P2P Lending
- It offers direct, active involvement in where your money goes, unlike buying a stock or fund and waiting to see what happens.
- You can choose the loans you invest in and control how much risk you're taking on, loan by loan.
- Returns are not directly correlated to the stock market, which can offer some diversification benefit.
- Some investors like that their money is directly funding another person's loan rather than an anonymous pool of capital.
Why Investors Avoid P2P Lending
- Notes are unsecured. If a borrower defaults, there's no collateral backing the loan, and recovering the loss is difficult and often not worth the cost.
- Notes are illiquid. Unlike stocks, you generally can't sell a note instantly if you need the cash.
- It takes time and some financial literacy to evaluate loans and build a diversified portfolio.
- Cash balances may be FDIC insured through the platform's banking partner, but invested principal is not insured and can lose value.
- The pool of available platforms has shrunk significantly, which limits comparison shopping and competitive rates for investors.
What Changed: LendingClub Became Happen Bank
LendingClub was one of the two founding names in U.S. P2P lending. In December 2020, it shut down its retail P2P investing platform entirely and shifted toward becoming a full digital bank after acquiring Radius Bank. In 2026, it completed a rebrand to Happen Bank, reflecting a business now built around checking, savings, and personal loans rather than peer-funded investing. If you have older content, bookmarks, or accounts under the LendingClub name, they now fall under Happen Bank.
Where P2P Lending Fits in a Portfolio
P2P lending is generally treated as a smaller, alternative allocation alongside more traditional investments like a 401(k), individual stocks, ETFs, and bonds, rather than a core holding. Because notes are illiquid and unsecured, most investors who use platforms like Prosper treat it as a satellite position, not the foundation of their portfolio.
A commonly cited diversification approach is spreading an investment across roughly 100 notes at the $25 minimum, or about $2,500 total, across multiple risk grades, to reduce the impact of any single default.
FAQs
Yes, but the field has narrowed considerably. Prosper is currently the primary platform in the U.S. still offering retail investors the ability to fund individual personal loans.
LendingClub exited retail P2P lending in 2020 and became a full bank. In 2026, it rebranded as Happen Bank.
Cash sitting in your account is typically FDIC insured through the platform's banking partner. Money actually invested in loan notes is not FDIC insured and can be lost if a borrower defaults.
On Prosper, the minimum investment per note is $25, which allows for diversification across many loans without a large upfront commitment.
Historical returns on Prosper have generally ranged from about 3% to 8% annually, depending on the risk grades of loans selected. Past performance doesn't guarantee future returns, and losses are possible.
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