Peer-to-Peer Lending in Australia: How It Works and Whether It's Worth It

🤝 What is peer-to-peer lending?🔗

An online platform connects people who have money to invest directly with individuals or small businesses who want to borrow, cutting out the bank as middleman. You lend, they borrow, you earn interest.

ASIC prefers the term "marketplace lending" for the Australian context, which more accurately describes how these platforms operate (per ASIC INFO 213). We use both terms interchangeably here since most Australians still search for "P2P lending."

🎯 The essential: In Australia, P2P lending is typically structured as a managed investment scheme, the same legal wrapper used by managed funds. Investing through a platform like Plenti means acquiring an interest in a registered scheme that holds a pool of loans, not literally handing cash to a specific borrower. Moneysmart puts it plainly: "When you invest via P2P lending, you buy a financial product. This is typically a managed fund." That legal structure matters for understanding your rights, risks and protections.

⚙️ How does it work mechanically?🔗

Step 1, deposit funds. Open an account with a licensed P2P platform and transfer money in. Plenti lets retail investors start with as little as $10. SocietyOne (now part of MoneyMe Group) requires a $100,000 minimum, aimed at wholesale investors. Business-focused platforms like Zool Capital and Bigstone are also wholesale-only.

Step 2, borrowers are assessed and graded. The platform runs a credit check and assigns a risk grade (often an A-E tiering). Higher-grade borrowers are lower risk but pay lower rates, lower-grade borrowers pay more (higher potential return) but carry a higher default chance.

Step 3, you fund loans. Manually, picking specific loans, or via auto-invest, spreading money across many loans meeting your criteria. Most platforms strongly encourage auto-invest since spreading across dozens or hundreds of loans reduces the impact of any single default.

Step 4, repayments flow back to you. Over the loan term (typically 1 to 7 years), monthly repayments of principal and interest, often reinvestable automatically to compound returns.

Note: some platforms that started as pure P2P lenders have diversified their funding sources. Plenti now uses a mix of retail investors, institutional funding, and securitisation, so the "peer-to-peer" label is a bit looser than it once was.

📈 What returns can you expect?🔗

The premium over term deposits is real, roughly 2.5-3.5 percentage points for consumer P2P, 7-10 percentage points for business P2P. But that premium isn't free yield, it's the price of the credit risk you're taking on. The bank earns a margin by absorbing the risk that borrowers won't repay, in P2P lending you absorb that risk directly.

Some platforms offer partial buffers. Plenti maintains a Provision Fund (a pool of cash funded by borrower fees) that can step in when a borrower defaults. As of 31 March 2026, Plenti's Provision Fund held $7.2 million, with a reported 100% track record of protecting investors through defaults. Reassuring, but explicitly not a guarantee, if defaults spiked sharply, the fund could be exhausted.

⚠️ The real risks, what you need to understand🔗

Default risk

Borrowers can and do fail to repay, the most obvious risk, applying even to loans graded "low risk." Moneysmart warns: "You could lose some or all of your money even if you invest in a 'low-risk' loan." Most P2P loans are unsecured, no asset backs the loan. If a borrower defaults, the platform may pursue recovery but you could end up with cents in the dollar, or nothing.

Platform risk

The risk most investors underestimate. The P2P platform itself can fail, and when it does, the consequences for investors can be severe and prolonged.

A real Australian example: in March 2026, McGrathNicol was appointed as receiver to two Marketlend trusts (CC1 and CC2) after the trusts defaulted on interest payments. iPartners, which held Class A notes in those trusts, was owed almost $3.9 million in unpaid interest, with total notes worth $81.7 million affected. Even where the underlying loans were performing, investors faced uncertainty, delays, and the complexity of a receivership process.

Liquidity risk

Money is typically locked in for the loan term (1 to 7 years), an illiquid managed investment scheme under Australian law. Unlike a savings account, you can't withdraw on demand. Some platforms offer secondary markets or early exit features, but these aren't guaranteed and may come at a cost. Plenti offers early access subject to conditions. Plan to hold for the full term.

Concentration risk and the case for diversification

$5,000 into a single loan is very different from spreading $5,000 across 500 loans at $10 each. The latter means one default barely moves the needle, the former means one bad borrower could wipe out your entire investment. Auto-invest features enforce this diversification automatically. But diversification across loans only addresses borrower-level risk, not the platform going into administration.

📋 Regulatory status in Australia🔗

Regulated, but regulated doesn't mean risk-free. Under ASIC's framework (INFO 213), marketplace lending platforms generally need both: an Australian Financial Services Licence (AFSL), required to operate a managed investment scheme and offer financial products to investors, and an Australian Credit Licence (ACL), required if the platform makes consumer loans.

If offered to retail investors through a managed investment scheme, that scheme must be registered with ASIC, and the responsible entity must be a public company holding an AFSL. Business-only lending platforms generally don't need an ACL but still need an AFSL.

Verify any platform's licence status on ASIC's Professional Registers Search. If it's not listed, it may be operating illegally.

Retail investors must receive a Product Disclosure Statement (PDS) before investing. Read it, it tells you what happens if the platform becomes insolvent. Unresolved disputes with a licensed platform can be escalated to the Australian Financial Complaints Authority (AFCA), a free independent dispute resolution service.

🎯 The essential: Holding an AFSL or ACL means the platform is operating legally. It does not mean your capital or returns are guaranteed. Licensing is a minimum standard, not an endorsement.

💰 Tax treatment🔗

Interest income from P2P lending is assessable income, taxed at your marginal tax rate in the year received. No special treatment, it's the same as bank interest. This is different from the 50% CGT discount available on shares or property held over 12 months, P2P returns are pure income, not capital gains. Most platforms provide an annual tax statement. For your specific situation, particularly investing through a trust, company, or SMSF, speak to a registered tax professional.

🧭 Who might consider P2P lending?🔗

Could make sense if you:

• Already have core financial foundations in place (emergency fund, super contributions, a diversified share or property portfolio) and want an alternative income stream
• Are comfortable with higher risk than a term deposit for potentially higher return
• Can genuinely lock money away for 1 to 7 years
• Are treating P2P as a small allocation (5-10% of your overall portfolio) rather than a primary vehicle
• Have read the PDS and understand what happens if the platform fails

Probably not right if you:

• Are looking to park your emergency fund or short-term savings
• Can't afford to lose part or all of the invested amount
• Are expecting guaranteed returns comparable to a term deposit
• Haven't verified the platform holds a current AFSL (and ACL if applicable)

The risk-return profile sits somewhere between a term deposit and a high-yield bond fund, a legitimate place in a diversified portfolio, but only as one piece of it.

💭 3 common misconceptions about P2P lending🔗

1. "The returns are guaranteed like a term deposit." False. Returns depend entirely on borrowers repaying loans, even low-risk-graded loans can default, the advertised rate is a target, not a promise.
2. "My money is protected by the government guarantee." False. P2P investments are not covered by the Financial Claims Scheme, the government's $250,000 deposit guarantee that protects bank accounts. Plenti's own website states: "Your investment is not a deposit and does not have the benefit of depositor protection laws."
3. "Diversifying across loans protects me from everything." Only partially true. Spreading across many loans reduces the impact of any single borrower defaulting, genuinely valuable, but does not protect from the platform itself failing (the Marketlend receivership affected investors regardless of individual loan diversification).

❓ Frequently asked questions🔗