P2P Lending: Don't Judge It by the Advertised Rate Alone
P2P lending platforms often advertise annual returns of 8-15%, which looks tempting next to a savings account. But that headline number is the rate before taxes and default risk are subtracted. Interest from P2P lending is reported as ordinary income and taxed at your marginal federal (and state) rate, with no special reduced rate like qualified dividends get. On top of that, P2P loans aren't principal-protected: if borrowers stop paying, you can lose part of your invested principal along with the interest you expected.
This calculator takes your investment amount, expected return, and term to find your gross interest, then subtracts income tax at your marginal rate and an expected principal loss based on your assumed default rate, arriving at a realistic final repayment estimate. The gross interest alone often looks generous, but once tax and defaults are factored in, the actual amount you collect can be meaningfully lower. Running a conservative default rate through the numbers helps you judge whether the risk-reward on a given platform actually makes sense.
Even when you spread money across many loans, defaults tend to cluster during economic downturns, so only invest money you can afford to lose and review a platform's historical default and recovery data before committing.
Frequently Asked Questions
It's reported on Form 1099-INT/1099-OID and taxed as ordinary income at your marginal rate, with no special reduced rate.
P2P loans aren't principal-protected. If a borrower stops paying, you can lose part of your principal, so defaults must be factored in for a realistic estimate.
No. It ignores tax and defaults. Judge deals by the after-tax, after-default estimate instead of the headline number.
※ Actual default and repayment outcomes vary by platform and loan. Results are estimates only.