Lending Model for Peer-to-Peer Platform Participation
Originally published: 14/06/2021 06:32
Publication number: ELQ-78421-1
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Lending Model for Peer-to-Peer Platform Participation

Model for tracking returns via lending money to borrowers on platforms that connects borrowers and lenders (P2P lending)

Description
The idea of community-based lending and borrowing has taken off in the last decade due to technology and the need for alternative borrowing options. As a result, plenty of P2P platforms have popped up to offer facilitation of this activity in return for a fee. The crypto world has taken to this idea as well and added a decentralized dynamic to the game with decentralized finance or DeFi.

Anyone who is a prudent investor is going to what to plan out how much their expected returns may be based on a one-time investment or investments added over time. Also, they are likely going to want to know what happens when they re-invest their interest earnings to get more and more interest over time.

This model lets the user plan out expected deposits and withdrawals into a P2P lending platform. The main input is the net annualized return that will apply to all deployed capital: Note, this rate should reflect the potential for defaults. This means the % will be lower than your % return after platform fees. It will depend on how your platform deals with defaults as well as the kind of risk you are taking on loans in order to come up with a number that makes sense for your situation.

The user of this financial model can also plan out: Starting Investment, years active (max of 55) start date, cash drag (in months), and the investing returns are defaulted to monthly. Also, future deposits and withdrawals will apply in the model and resulting returns will update. This allows for the withdrawal of interest or by not withdrawing interest will compound.

Return metrics of the whole endeavor include: IRR (internal rate of return), annualized $ returned, annualized ROI, and return multiple.

This Best Practice includes
1 Excel model and 1 Tutorial Video

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Further information

Calculate returns (including compounding effects) of investing in P2P loans.

Any peer-to-peer platform.

Nothing specific.

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