P2P Lending: The Hidden Risks Nobody Talks About

“12-18% annual returns!” “Passive income from home!” “Better than deposits!”

P2P lending ads are everywhere, promising attractive returns. Many financial influencers recommend it as a “deposit alternative” or “easy passive income.”

But there’s a dark side that’s rarely discussed. This article will expose the hidden risks of P2P lending that you need to know before putting your money in.

Disclaimer upfront: I’m not saying P2P lending is a scam. P2P lending platforms registered with OJK (Indonesia’s Financial Services Authority) are legitimate businesses. But legal doesn’t mean safe — and many investors don’t understand the real risks.

1. What Is P2P Lending?

P2P (peer-to-peer) lending is a platform that connects:

• Lenders: You, looking for returns higher than deposits
• Borrowers: Individuals or SMEs who need loans

The platform acts as an intermediary, taking fees from both sides.

How Does It Work?

1. You register on a P2P platform as a lender
2. The platform displays various “loans” with different risk profiles and returns
3. You choose which loans to fund (usually starting from Rp 100,000)
4. Your money is channeled to the borrower
5. The borrower repays monthly (principal + interest)
6. You receive installment payments in your platform account
7. Once repaid, you can withdraw or reinvest

Promised returns: 10-18% per year (before defaults)

Reality: After accounting for defaults, your net return can be much lower — even negative.

2. Risk #1: Borrower Default

This is the most obvious risk, but it’s often underestimated.

Understanding TKB90

OJK requires platforms to display TKB90 (90-Day Success Rate): the percentage of loans that aren’t more than 90 days overdue.

Examples:

• TKB90 = 97% means 3% of loans are more than 90 days overdue
• TKB90 = 95% means 5% of loans are more than 90 days overdue
• TKB90 = 90% means 10% of loans are more than 90 days overdue

The TKB90 Interpretation Trap

Common mistake: “TKB90 of 97% means 97% is safe”

Reality:

• TKB90 measures number of loans, not amount
• A large loan defaulting is more damaging than a small loan performing well
• 90 days overdue ≠ will definitely be repaid — many end up as permanent defaults
• TKB90 can be “manipulated” by excluding problematic loans from calculations

Simulation: Impact of Defaults on Returns

Let’s say you invest Rp 10 million with an expected 15% annual return.

Scenario	Default Rate	Gross Return	Loss from Defaults	Net Return
Optimistic	2%	Rp 1.5 million	Rp 200k	13%
Realistic	5%	Rp 1.5 million	Rp 500k	10%
Bad	10%	Rp 1.5 million	Rp 1 million	5%
Very Bad	15%	Rp 1.5 million	Rp 1.5 million	0%
Crisis	20%+	Rp 1.5 million	Rp 2 million+	Negative

Key point: You need many performing loans to cover ONE defaulted loan. A 10% default rate wipes out profits from 10 performing loans.

Actual Default Rates

Platforms usually display nice-looking TKB90 numbers (95%+). But:

• Complete historical data is rarely published
• The definition of “default” can vary between platforms
• Economic conditions matter (during crises, defaults spike dramatically)

Empirical experience from various investor forums:

• Tier-1 platforms (large, established): 3-7% default rate in normal conditions
• Tier-2 platforms: 5-12% default rate
• Tier-3 or new platforms: 15%+ default rate or worse

During economic crises (like COVID 2020-2021), many platforms saw default spikes of 20-30%.

3. Risk #2: Platform Risk (Bankruptcy/Shutdown)

This is a risk that’s often overlooked: what if the platform itself has problems?

No Guarantee Like LPS

Deposits: Guaranteed by LPS (Deposit Insurance Corporation) up to Rp 2 billion per bank per customer. Bank goes bankrupt? Your money is still safe (within guarantee limits).

P2P Lending: NO guarantee. If a platform shuts down, there’s no institution guaranteeing your money will be returned.

Real Cases: Troubled P2P Platforms

Since 2018, OJK has revoked licenses or halted operations of dozens of P2P lending platforms for various reasons:

• Not meeting minimum capital requirements
• Governance issues
• TKB90 too low
• Regulatory violations

What happens to lenders when a platform shuts down:

• The refund process can take years
• Not all funds are returned — especially if the platform lacks sufficient assets
• Lenders must compete with other creditors in the liquidation process
• Legal and administrative costs eat into available funds

OJK Requires Escrow, But…

OJK does require P2P platforms to use escrow accounts — separate accounts that can’t be mixed with company operations.

In theory: Lender funds are safe even if the platform goes bankrupt.

In practice:

• Oversight isn’t always effective
• The return process from escrow still takes time
• If there’s a mismatch between outstanding loans and escrow funds, there’s a problem

P2P Platform Red Flags

Be cautious of platforms that:

• Have TKB90 below 90% (very risky)
• Aren’t registered with OJK (illegal!)
• Promise returns far above industry average (too good to be true)
• Have hard-to-reach customer service
• Frequently have delayed or problematic withdrawals
• Aren’t transparent about default data

Check legality: ojk.go.id → Consumer Services → Check Legality → Fintech P2P Lending

4. Risk #3: Low Liquidity

Unlike mutual funds or stocks that can be sold anytime, money in P2P lending is locked until the loan is repaid.

Loan Tenors

Loan Type	Typical Tenor	Implication
Consumer loans	1-6 months	Relatively short
Invoice financing	1-3 months	Short
SME loans	3-12 months	Medium
Property/productive	12-36 months	Long

Can’t Withdraw Mid-Term

If you need emergency money, you cannot withdraw funds from ongoing loans.

Scenario:

• January: Invest Rp 10 million in a 12-month loan
• March: Need emergency funds
• Reality: Money is locked until next January

Some platforms offer a “secondary market” to sell loans to other lenders, but:

• Not all platforms have this feature
• You might have to sell at a discount (loss)
• Secondary market liquidity is low

Implications for Financial Planning

P2P lending is NOT the place for:

• Emergency funds
• Money you might need soon
• Most of your portfolio

P2P lending is ONLY suitable for money you truly won’t need for the loan’s tenor period.

5. Risk #4: Hidden Costs and Taxes

Tax on P2P Interest

Interest from P2P lending is subject to 15% final withholding tax (since 2021).

Calculation:

• Gross return: 15%
• Tax: 15% × 15% = 2.25%
• Net return before defaults: 12.75%

After accounting for 5% defaults: net return around 7-8% — not far from safer SBN (government securities).

Withdrawal Fees

Some platforms charge fees for withdrawing funds, especially below certain minimum amounts.

Time and Effort

P2P lending requires more effort than passive investing:

• Choosing good loans
• Monitoring payments
• Dealing with defaults (contacting platform, reports, etc.)
• Diversifying across many small loans to reduce risk

This time has an “opportunity cost” — it could be spent on other things.

6. Comparison: P2P Lending vs Alternatives

Let’s compare P2P lending with other investment alternatives:

Aspect	P2P Lending	Deposits	Money Market Funds	Retail SBN	Bond Mutual Funds
Gross return	12-18%	3-5%	4-6%	6-8%	6-10%
Net return (after tax & defaults)	5-10%*	2.4-4%	4-6%	5.4-7.2%	5.4-9%
Principal risk	High	Very low	Low	Very low	Medium
Guarantee	None	LPS Rp 2B	None (but assets are segregated)	Government-backed	None (but assets are segregated)
Liquidity	Low	Can withdraw (penalty)	T+2	Secondary market	T+3 to T+7
Tax	15% final	20% final	0%	10% final	0%
Effort	High	Low	Low	Low	Low

*P2P lending net returns depend heavily on the actual default rate experienced

Analysis

If you prioritize safety: Deposits or Retail SBN are far better.

If you prioritize return with moderate risk: Bond or balanced mutual funds are more optimal — competitive returns, more measurable risk, liquid.

If you prioritize tax efficiency: Mutual funds (0% capital gains tax) are the answer.

P2P lending makes sense if:

• You understand and accept the risks
• Only for a small portion of your portfolio (max 5-10%)
• Money you truly don’t need in the short term
• You have time and patience for diversification and monitoring

7. Strategy If You Still Want to Invest in P2P

If after reading all the risks above you still want to try P2P lending, here are best practices:

1. Limit Your Allocation

• Maximum 5-10% of total investment portfolio
• Don’t let P2P losses disrupt your finances
• Treat it as “high-risk allocation”

2. Choose Platforms with High TKB90

• Minimum TKB90 of 95% or higher
• Check the platform’s track record (how long has it been operating?)
• Make sure it’s registered with OJK

3. Maximize Diversification

• Don’t put everything in one loan
• Spread across at least 50-100 different loans
• Mix various loan types and tenors
• Use auto-invest features if available

Diversification math:

• Invest Rp 5 million in 1 loan → If it defaults, you lose 100%
• Invest Rp 100k in 50 loans → If 1 defaults (2%), you lose 2%

4. Choose Short Tenors

• 1-3 month tenors are safer than 12+ months
• Money returns faster, you can reinvest or exit sooner
• Reduces exposure to changing economic conditions

5. Understand Loan Types

Type	Risk	Return	Notes
Invoice financing	Low	8-12%	Has underlying invoice as collateral
Productive SME loans	Medium	12-15%	Depends on platform’s screening quality
Consumer loans	High	15-20%	Default rates usually higher

6. Monitor and Be Ready to Exit

• Check payments periodically
• If there are warning signs (withdrawal delays, declining TKB90), consider exiting
• Don’t reinvest if you’re no longer comfortable

7. Keep Records for Taxes

• Save all proof of interest received
• Even though tax is already withheld, it still needs to be reported in your tax return

8. When NOT to Invest in P2P Lending

Don’t invest in P2P lending if:

• ❌ You don’t have an emergency fund of at least 3-6 months of expenses
• ❌ You still have consumer debt (credit cards, predatory loans)
• ❌ You can’t afford to lose the money you’re investing
• ❌ You need the money in the short term
• ❌ You don’t have time for research and diversification
• ❌ You think P2P lending is as safe as deposits
• ❌ You’re attracted by high returns without understanding the risks

9. Conclusion

P2P lending is not a deposit alternative. It’s a high-risk investment that happens to provide returns in the form of “interest.”

Main risks:

1. Borrower default — can wipe out profits and even principal
2. Platform risk — no guarantee if the platform has problems
3. Low liquidity — money is locked until tenor ends
4. Costs and taxes — reduce effective returns

Returns that look high (15-18%) can become very low or even negative after accounting for defaults and taxes.

More sensible alternatives for most investors:

• Money Market Mutual Funds — for safety and liquidity
• Retail SBN — for moderate returns with government backing
• Bond Mutual Funds — for higher returns with measurable risk
• Index Funds — for long-term growth

If you still want to try P2P lending, limit it to a small portion (5-10% of portfolio), diversify maximally, and be prepared to lose that entire allocation.

Remember: in investing, if returns look too good, there’s usually risk you haven’t seen.

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Read also:

• The Dangers of Illegal Online Lenders
• How to Check Investment Legality with OJK
• The Risk-Return Spectrum
• Deposits vs SBN vs Money Market Funds

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Disclaimer: This article is not investment advice and is not a recommendation for or against P2P lending. Every investment carries risks. Do your own research, understand the risks, and consult with a financial advisor if needed before making decisions.

Related Articles

• How to Check Legal Investments (OJK)
• Signs of Investment Scams
• Illegal Loan Apps Dangers
• Risk-Return Spectrum
• Reducing Risk