Private credit and peer-to-peer lending

Private credit refers to loans made by non-bank investors — directly to companies or individuals — that don't trade on public markets. For individual investors, this mainly shows up as peer-to-peer lending platforms (like Prosper or LendingClub, the latter of which stopped P2P) or private credit funds available through brokerages. The pitch: higher yields than bonds. The reality: higher yields with meaningfully higher risk and much less liquidity.

How peer-to-peer lending works

A platform connects individual borrowers (usually for personal loans) with individual lenders (you). You fund a fraction of many loans, earning interest on each. Returns of 5–10% are typical for diversified portfolios of loans. But default rates are real — 3–8% of loans may default depending on the credit tier, and a recession can spike that number dramatically.

Private credit funds

More sophisticated investors can access private credit through interval funds, BDCs (business development companies), or private credit ETFs. These lend to mid-sized companies at higher rates than public bonds. The yield premium is real — but so are the risks: illiquidity, credit concentration, and the possibility of significant losses in an economic downturn when the companies you lent to struggle to repay.

Who this is for

• Investors who have maxed their tax-advantaged accounts and have a fully diversified stock/bond portfolio already.
• People seeking yield who understand that higher yield = higher risk, always.
• Investors with a long time horizon and tolerance for illiquidity.
• NOT for emergency funds, NOT for short-term goals, NOT for anyone who might need the money back on short notice.