P2P and online direct lending returned 7.61pc in 2024

Peer-to-peer and online direct lending made an average return of 7.61 per cent in 2024, according to the latest statistics from the 4th Way P2P And Direct Lending (PADL) Index.

This means that online lending has outperformed inflation in nine out of the past 10 years and has earned investors 7.31 per cent per annum annualised, net of investing costs and bad debts over the past decade, 4th Way said.

By comparison, 4th Way calculations showed that the FTSE 100 has returned 4.77 per cent annualised over the same period, after assuming one per cent in investor costs. FTSE 100 returns have beaten inflation in six out of the past ten years.

According to 4th Way, in 2024, the FTSE 100 delivered 8.54 per cent in net returns to investors, beating online lending returns by 0.93 per cent.

“Share investors returns pipped P2P lending last year, but despite now coming out of a tough time for borrowers, the past few years have shown the reliability of this asset class, with solidly positive results,” said Neil Faulkner, co-founder and managing director of 4th Way.

“Indeed, online lending as an asset class has had positive returns every year since it started in 2005, even when considering all closed platforms. 20 years later, when will the wider investing community will catch on?”

Faulkner added that online property lending has stably paid out approximately six to eight percent per annum, “comfortably” beating the stock market in the long run and without the volatility associated with equity investing.

Despite another year of positive returns, the PADL data found that P2P and online direct lending suffered its heaviest ever losses in December 2024, with total loan write-offs amounting to almost £4m in interest and capital. Without these losses, the PADL Index would have reported a return of 8.12 per cent for the year.

4th Way reported that the worst 12-month period for online lending happened around 10 years ago, when the sector pulled in 5.51 per cent in net returns, while the stock market made just two per cent. The best 12-month period saw investors earn 8.77 per cent from their online lending investments.

The PADL Index comprises data collected from six of the largest P2P and online lenders in the UK, including Loanpad. Together, the total lending volume of these platforms is equal to half the size of the P2P lending market, at around £750m.

Independent ratings agency 4th Way has tracked the performance of the online lending sector since July 2014.

“Loanpad is a proud constituent of the PADL Index, and we report our performance data directly to 4th Way,” said Neil Maurice, Chief Operating and Finance Officer at Loanpad.

“We are not surprised to see another year of positive returns for the asset class. P2P lending has been around for 20 years and during that time it has proven its ability to deliver competitive, consistent returns for investors, while adding diversity to investor portfolios.

“While past performance is no guarantee of future returns, the long track record of P2P lending helps show that this asset class can deliver for its investors. This is thanks to strong due diligence, conservative lending practices and well-chosen investment opportunities. We look forward to seeing what 2025 brings.”