Bonds Vs. Peer Lending: Differences In Risks

Jan. 09, 2014 2:46 PM ETIGSB, BND6 Comments
Emmanuel Marot profile picture
Emmanuel Marot

Investing in Peer Lending loans is becoming increasingly popular. Lending Club, the US market leader, has issued more than $3B in consumer credit, and there is now a frenzied competition amongst investors to snatch up the best loans.

In a previous article (, we compared Peer Lending returns with the Bonds market, and concluded that investing in Peer Lending, or at least in a large Peer Lending market such as Lending Club, can provide higher-returns than Bonds. We'll now review the fundamental differences between the two, and what they mean in term of risks. All the Peer Loans data come from the excellent Lending Club' statistics page (

While Bonds are used to raised multi-million dollars, Peer Loan amount are only a few thousands dollars, the Lending Club average being $13,380. Bonds are long-term loans, ranging usually from 10 to 30 years, although other debt securities such as Bills and Notes offer shorter terms (less than 1 year for Bills, 2 to 10 years for Notes). In comparison, Peer Loans have quite a short term. Since they're mostly consumer credit loans, they last only 3 or 5 years. Bonds are split up in 'trenches' of $1,000. Peer Loans are available in much smaller chunks, starting at $25. Bonds pay interests twice a year, and pay back the principal at maturity. Peer Loans pay back both interest and principal every months. They follow a principle of full amortizing, meaning the monthly payments are constant while the ratio payment of interest / re-payment of principal decreases over time.

Bonds Peer Loans (Lending Club)
Term 10 years and more 36 or 60 months
Loan Amount Millions of Dollars Thousands of Dollars
Minimum Investment $1,000 $25
Payment Interests twice a year, principal at maturity Full amortizing
Guarantees Sometimes Never

This article was written by

Emmanuel Marot profile picture
Emmanuel Marot graduated from leading French Business School ESCP with a major in Computational Finance and a MBA exchange from the University of Washington. He previously co-founded and managed three startups, all in the Internet field, and all with successful exits; the last one being a mobile search engine that served a billion queries in over 10 countries and was subsequently sold to Microsoft Corp. An ‘accidental quant’, Emmanuel now focuses on merging sound mathematical principles with his Internet data mining experience to create new stock market investment strategies.

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