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P2P Lending – How To Get A 24% Return

September 29, 2017


Regular readers will know I’m a fan of Peer-to-Peer (P2P) Lending.

For those unaware of how P2P Lending works, or for a refresher, check out my article called “Become A Bank With Peer-to-Peer Lending.”

The article gives a good overview of the ins and outs of this relatively new technology, and I share my experience so far.

Basically, with P2P Lending you agree to lend your money out to others, using an online platform.  The credit checks and paperwork are dealt with by the online platform provider – in this case RateSetter.

My experience has been positive.  And the returns are attractive, the platform easy to use (even fun), and RateSetter’s customer service is excellent.

**Note:  Since writing this post, RateSetter is now called Plenti. Also, due to ASIC’s crackdown on what they term ‘financial influencers’ I am no longer able to provide referral links as originally published in this article**


Returns With P2P Lending

Effectively, the longer you lend out your money, the higher the returns you’ll achieve.

Current interest rates (as of 24/10/2018) for lenders are as follows:

1 Month – 3% p.a.
1 Year – 4.2% p.a.  (please note, the 1 year market has now been closed)
3 Year – 8.7% p.a.
5 Year – 9.8% p.a.

For 1 month and 1 year, you are paid interest monthly.  Your principal will be returned to you at the end of the loan term – 1 month or 1 year.

For 3 or 5 year lending, you are paid interest monthly, and also some principal.  So the loan will be paid back to you a bit each month, along with the interest.

Think of it like a mini home-loan in reverse (where you’re the bank).  You can then choose to re-invest your money into a new loan, or withdraw the money to your bank account.

We have a decent sum invested on the platform, as a result of investing proceeds from a property sale last year.  Our funds are spread across many different loans, and we receive payments all throughout the month.

Currently, we have it set up to ‘auto-withdraw’ on Monday each week.  So basically, as loans are partly repaid to us throughout the month, the funds sit in the ‘Holding Account’ – the home of funds that have been paid back to you, or just sitting there, waiting for you to invest or withdraw.


So here’s what I did…

Since I’m a famous blogger now (ha!), I decided to call RateSetter.

First of all, I told them about my experience with them, and then about my blog.

Because I was going to be recommending that folks consider trying out RateSetter for a portion of their investments anyway, and because of my happy experience, I thought we could make a deal.  And we did.

RateSetter has decided to offer my readers a $100 bonus, when they signup and invest on their P2P Lending platform.  They even said I would receive the same bonus, which I wasn’t expecting.


What’s the catch?

To get the bonus, you need to invest a minimum of $1000 on the platform, into the 3 year market (or longer).  That’s it!

After investing, within a couple of weeks you’ll receive the $100 cash bonus into your RateSetter account.

Usually RateSetter makes the bonus payments every week or two, so you won’t have to wait too long for it!


Dude where’s my 24% return

If you lend $1000 in the 3 year market, satisfying the criteria for the cash bonus, here’s how your return looks…

$1000 investment.
$100 cash bonus.
Capital plus interest returned to you – approx $32 per month for 3 years.  (3 year interest rates are currently 8.7%)
Total Return to you = $1240.
That’s a 24% return over the period

And this is if you never reinvest any of the interest or principal, so your cash invested and therefore your risk reduces each month.  But if you decide to reinvest the payments, your return will be much higher than this because you have more funds on loan earning interest!

That’s not too shabby in my book!

If you’re curious, you can check out the repayment maths for my example here.  As I said, think of it like a reverse home loan where you’re the bank.


Here’s my logic

If you are interested in P2P Lending maybe being a part of your portfolio, it’s a great way to test the waters.

Trying it out with $1000, will let you enjoy higher than average returns, while you’re experimenting with it.  You’ll get a feel for the platform, and know whether you like P2P Lending as an investment.

Then you can then decide if you want to make it part of your investment portfolio for the longer term.

Also, like any investment, it contains risk.  So before you get started, learn the nuts and bolts of how P2P Lending works, see my full overview here – Become A Bank With Peer-to-Peer Lending.


Some things to remember with P2P lending

Investing for income should ideally be done in the lowest tax bracket possible.  Since retiring earlier this year, we are now in very low/no tax environment, so this is not an issue for us.

Earning interest via P2P Lending, is essentially the same as interest from a bank – it’s taxable income.

So while you may earn a high rate of return in the 5 year market (9.8%), if you’re in a high tax bracket, it’s likely to end up being around 5% or 5.5% return after-tax.

Something to think about before diving in.  If you have a spouse on a low to moderate income, it’s likely to be well suited to that situation.

Whatever the investment, we should make sure we aren’t losing too much of our return to tax.

Happy experimenting, happy learning and happy lending  🙂


72 Replies to “P2P Lending – How To Get A 24% Return”

  1. Great deal! I’ve been using Ratesetter since April this year, and I’ve found it to be easy, once you get your head around how it works. After an initial play, I’m only investing in the 5 year market now, although it’s about time I put some into the Green market as well. I have noticed the rates come down a little in just the time I’ve been investing, but it’s still so much higher than I can get elsewhere with such a minimal amount of work!

    1. Nice work Mrs ETT. The 5 year market returns are quite juicy, and no fuss involved at all. We lent our lump sum in the 3 year market as that worked out best for our situation. Not without risk though, but sure as hell beats a term deposit at 2%!

  2. Excellent read as always. Conidering the $100 off deal, now i will definitely join RateSetter and start investing. Also good tip with the spouse. Keep them coming

  3. I’m already investing with Ratesetter but this deal you have going on is too good! I think I will get my husband to sign up too. 😀

  4. Helpful review! Another good tool for a FIRE-chaser’s portfolio, especially for shorter-term savings goals. I signed up to the platform via your link in early November, making my $1000 loan for 1 year. Do you know how long it takes for the sign up bonus to come through? Keep up the great work.

    1. Gday HerdingDollars, and thanks!

      Not sure if you saw my much more detailed RateSetter review – here

      I’ve had a great experience with RateSetter so far and the rates are solid. I like the provision fund in place, since it works (so far) to smooth out the defaults and lenders receive the regular income stream.

      Thanks for letting me know – it usually takes only a week or so. I’ll chase them up about this today!
      I’ll let you know their response. Should I email to your herdingdollars address?

  5. Hi SMA, I unfortunately discovered your blog only now. So I would like to ask if it’s too late or the referral code is still active for a new ratesetter signup?

    1. Hi Jak, the referral program is ongoing so anyone can still join, start lending and they’ll get the bonus 🙂

      Thanks for reading!

  6. Hello ????This is a great deal ???? We clicked on the link and deposited $1000. How long does it take for the $100 to appear in our account?
    Thanks for your help

    1. Once you put your funds into the market (1 year or longer) and it gets matched with a borrower, you’ll qualify for the bonus. At the start of each month Ratesetter runs a report for the previous month to see who qualified and then pays the bonus in the first 2 weeks of the month.

      So if you invested during this month, you’ll need to wait until the first 2 weeks of next month to get the bonus. Not super speedy, but worth the wait because it’s a good offer 🙂

  7. Thanks. Yes, it is a good offer ???? Our Money has an investment date of May 28th so we may have just missed the cutoff. Well look forward to the start of July.

  8. Keen to give lending a go with RateSetter, Dave, but hesitant for some reason. (as most people would be early in their investing days). As a lender are there any potential complications with getting a loan through a bank or anything down the line by having used RateSetter?

    1. Hi Linc.

      No there wouldn’t be complications. Lending through RateSetter is a type of investment. It’s only if you borrowed money on the RateSetter platform that it would affect you getting a loan from a bank.

      I was a little nervous too, but RateSetter make all their stats available to see and you can lend your money out in small increments if you feel more comfortable that way. Just note you won’t be eligible for the bonus until your $1k has been matched with borrowers.

      My favourite part of RateSetter is their provision fund which protects against loan defaults. Since starting, no investor has ever lost money due to this provision fund. Including in the UK where they started in 2010. It’s not a guarantee of course, but they have a great track record so far of managing risk. Hope that helps.

        1. Their fees aren’t excessive at all I don’t think. Their margins are much lower than banks operate at so we can’t say they’re greedy. In fact, I would guess the platform is not even profitable since they’re still firmly in the growth phase. Most importantly for us, the returns Ratesetter displays are net of fees so what you see is what you get (which is refreshing).

    1. Hi Pete – yes I don’t see why not. RateSetter never stipulated it must be an individual, simply a new lender. If you have any issues with it please let me know and I’ll follow it up with them 🙂

  9. FYI I signed up with your link Friday and loaned $1000 on the one year market this morning, make sure you keep an eye out for your bonus and I’ll let you know if mine doesn’t appear in the next month. Cheers

  10. Interesting that you mention not without risk in the comments but nowhere in your article is there a mention of risk… I think that you should be a little more transparent in your article as presumably lending like this is technically a risk (hence risk = reward). The article may read less like a review then than how it currently reads.

    1. Thanks for the comment Steph. Please note this is not a review, in the first section of the article (and further down) I make it clear that I’ve written about how peer-to-peer lending works with a link to my post about it for those unaware. And if readers are familiar with it, they’ll know it carries risk like all types of investment does.

      I’m sorry if you felt it isn’t transparent – I’ll make the link to my review (which discusses risk) more prominent.

    1. We have two lumps. One in the 3 year market which we’re receiving principal and interest payments each month and withdrawing all the money. The second lump is in the 3 year market which we reinvest the principal each month and keep the interest. Completely up to you which option you prefer.

  11. Hi Dave,
    Would recommend putting the annualised return along side that 24%.
    Annualised return is 7.43% when including the free $100 to the end of the loan.

    For readers interested in how to calculate this, here is how:
    Original investment = $1000
    Return after 3-years = $1140
    Total interest payments received: $1140 – $1000 = $140
    Total return (including bonus): $140 + $100 = $240
    So the return over 3-years is $240/$1000 = 0.24 =24% as described in the article.
    Now, to find what this return looks like for each of those three years we do this:
    (1+ x-year return percent)^(1/years invested) – 1
    (1.24)^(1/3) – 1 = 0.0743 or 7.43% per year.

    You can test this by:
    $1000*1.0743*1.0743*1.0743 = $1239.87

    Another point: Readers should be aware that the $100 referral is a one-off. If we mimic the investment by putting another $1000 in at the same time, then we will have:
    2nd investment = $1000
    3-year return = $1140 or 14%
    Now annualised: 1.14^(1/3) – 1 = 4.46%. Mighty big difference between 24% return and a 4.46% return.

    Moral: Investors should always learn how to calculate returns as there won’t always be an actuary around to rate-check a blog post.

    1. Thanks Travis.

      The return is already broken down in dollar terms for the period, so I didn’t feel any need to give alternative calculations for it. And it’s pretty clear it’s a one off because it’s a ‘signup’ bonus.

      Sorry if you feel it’s misleading.

    2. I don’t think this method of measuring your returns really makes sense though. These calculations only make sense if you just do nothing with your principal and interest payments. At the end of the three years you’d have almost $1140 doing nothing (and that’s ignoring the $100). Of course if you’re actually an investor you either have most of that money reinvested in more ratesetter loans or you have it in your bank account waiting for enough to be worth buying ETFs or something. On the other hand there’s tax. 34.5% is going to be taxed if you earn in the 37k to 90k tax bracket.

  12. Thanks for your informative site!

    Pleased to report the Ratesetter offer is still going – I got my $100 after signing up a couple of weeks ago and making the necessary loan. I’m enjoying Ratesetter so far and have spread small amounts across various terms to spread the risk. Haven’t decided what role P2P lending will have in my portfolio long term, but for now I’m not locking up any more capital than I might need in the next 3-5 years, or could afford to lose in default. It’s nice to get paid a little bit each month – I love the end of the month when interest is paid in my high-interest bank account, and days (2-4 times a year) when I receive income from my shares and index funds. P2P loans add more days in the month to look forward to!

    On another matter, have you or any of your readers tried the Stake app? I’m considering dipping my toe into international shares and this might be the way to do it.

    1. Nice work Matthew!

      Yep the Ratesetter offer is an ongoing deal open to anyone new 🙂

      Love your enthusiasm about receiving investment income, I’m a bit the same! Great to see that cash coming in!

      I haven’t tried Stake personally, though I looked at it a while back and it actually looks pretty decent from what I could tell. They only charge fees on the currency conversion I believe. Thanks for the comment and all the best with your investing!

  13. Interesting, the interest rate does seem like a good amount. but you are without access to that money for three/five years and the 24% return is only because of that juicy $100 on your first (I assume its just first?) investment, so after that the return % will be a lot lower, but its still in a good range to compete with ETF’s and such

    1. Yes you’re correct the figure I quoted is including the bonus as mentioned. And money is generally not accessible as it’s on loan to someone else. Though there is a new feature for early withdrawal but there’s a fee involved (I believe 3% or so), so it is possible to get your money in an emergency. And yes unfortunately the signup bonus is only a once off lol 🙂

      Interest rates as of today for 3 year lending are about 6.5% pa and 5 year is about 8.3% pa, that’s with reinvesting the earnings – if taking the interest payments as income the compound returns are a little lower. Still quite decent returns, but up to you whether it suits you of course. You can find more info in my overview of Ratesetter here. Hope that helps Jos!

    1. Barry, RateSetter and this blog have a special ongoing referral program which doesn’t change. Any of my readers can sign up and lend with RateSetter and still receive a $100 bonus – this hasn’t changed 🙂
      Yep it was a tough year for most asset classes, while RateSetter continued to provide pretty attractive and reliable returns.

  14. The RateSetter $100 bonus offer expires today. I started the signup process, then read the T&C’s and realised I wouldn’t be eligible.

    Is it likely to be extended/renewed?

    1. Hi Tom, yes the offer is ongoing and open to everyone who hasn’t opened an account with RateSetter before. So unless you’ve done that you’ll still be eligible. If you’re worried about it, I can follow it up with them directly for you once you sign up – just send me your details via this contact page. Cheers.

    1. Thanks Ben, I’ll chase them up for a new Ts & Cs. To my knowledge yes, nothing has changed. I will write back to confirm 🙂

  15. Thanks for the article and the sign up link. Just checked the new T&Cs above and have signed up using the referral and will make my first $1000+, 3 year investment this fortnight.

    I have been pondering a creative way to utilise my tax refund without it going to waste (aside from my usual investments) and it looks like this will do the trick! The platform seems easy enough to navigate and actually looks like quite a fun concept, looking forward to it!

  16. Hey Dave,

    you mentioned “Investing for income should ideally be done in the lowest tax bracket possible”. Why is that?
    I am in a higher tax bracket does that mean there are better investment strategies?

  17. Hi Dave,

    I wanted to join ratesetter with your link, however reading TCs, it looks like this offer ended on 31/07/19?

    Do you know if there are plans to extend it?


  18. Hi Dave,

    I signed up via your link and put $1,000 for a 5 years loan on 24/09, any idea when I will see the $100 bonus?


    1. Hi Joe, nice work! It’s usually within 2 weeks. Given you haven’t got it yet, I’ll follow this up for you today!

      1. Hi Dave,

        I have also made my first successful loan (also $1000 over 5 years) over a month ago and am yet to see the bonus come through, are you able to follow this up as well?


        1. Hi Mark, Ratesetter just confirmed your bonus will be paid this week – there was an issue with cookies/tracking I understand. Thanks for your patience!

    2. Joe, Ratesetter have come back to me and said your bonus will be paid this week! Sorry about the delay 🙂

  19. Hi Dave,

    I’m interested in ratesetter and wanted to check if the $100 bonus is still going? As the termination date shows as 31/10/2019 in the Ts and Cs.

    Do you know if the offer will be extended again?


    1. Hey Mark. I’ve emailed my contact – 99% sure it will continue as normal, just a matter of getting the Ts & Cs updated. Will update you soon as I hear back.

    1. Hey there. The offer is ongoing, but I’ll get in touch with them for a renewed Ts & Cs – thanks for the reminder 🙂

        1. If any issues or you have questions just shoot me a quick email thru my contact page 🙂

          1. Hi Dave,
            Sorry for bringing up more questions. But would you be aware of their lending practices. There are quite a few recent comments on review sites, where ratesetter seems to have raised the variable interest by quite high % points and then blamed it on the individual lenders. Do individual lenders have that kind of a control on setting rates? I didn’t think that was the case.

            I was all set and have funded my account as well. But this questionable lending practice is holding me back.

            I will read up on their lending practice as well.

            Thanks for your responses till now.

          2. Ratesetter don’t control interest rates – it’s determined by the marketplace which is everyday people who are lending and borrowing. Check out my full article on how Ratesetter works here.

            We can choose any rate we want to lend at – even 20% if you want – the problem is, people won’t borrow from you at that rate, so you have to be reasonable and go with roughly what everyone else is doing or your money will not be taken. That’s how the marketplace works.

            Ratesetter do the credit checks and do their best to ensure the borrowers can afford to repay the loans, and manage defaults if they fall behind. Ratesetter charge the borrowers a fee based on their riskines which gets put into the provision fund which is used in helping recoup losses from bad loans, which has worked very well so far. Do a bit more reading first and see how you feel after that. Hope this helps and all the best 🙂

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