Peer-to-peer (P2P) lending has become an established alternative investment in 2025, offering investors the chance to earn interest by funding personal or small business loans outside traditional banking systems. But is it worth it?

The biggest draw is attractive returns. Many P2P platforms offer interest rates between 5–12%, depending on borrower credit ratings and loan types. These rates often exceed those of bonds or savings accounts.

However, returns come with elevated risk. Borrowers may default, and P2P investments are typically unsecured, meaning there’s no collateral to recover. That’s why diversification across many loans is critical. Most platforms let you spread your investment in small portions (as little as $25–$50 per loan) to minimize exposure to individual defaults.

Top platforms now use AI-driven credit scoring to better assess borrower risk. Many also offer automated reinvestment features and secondary markets for improved liquidity.

Watch out for fees—some platforms charge servicing or withdrawal fees that can eat into returns. Also, be aware of regulatory differences depending on your country, as P2P lending isn’t equally supported or protected everywhere.

For risk-tolerant investors seeking monthly income, P2P lending can be a useful addition to a diversified portfolio. Just ensure you’re using reputable platforms, reviewing performance data, and limiting overall exposure to preserve balance.

In 2025, it’s a viable strategy—but not a hands-off one. Caution and due diligence are essential.