Peer-to-peer (P2P) lending came to the United States in
2006, when individual investors began lending directly to
individual borrowers via online platforms. In the decade
since, the industry has grown dramatically, and P2P lending
is now widely regarded as the most progressive consumer
Online lenders and policymakers have suggested that the
P2P market offers unique bene ts to consumers. Three
bene ts are often repeated and seem to have become
widely accepted. First, P2P loans allow consumers to re -
nance expensive credit card debt. Second, P2P loans can
help customers build their credit history and improve their
credit scores. Finally, P2P proponents claim that P2P lend-
ing extends access to credit to those who are underserved
by traditional banks.
But signs of problems in the P2P market are appearing. Defaults
on P2P loans have been increasing at an alarming rate, resem-
bling pre-2007-crisis increases in subprime mortgage defaults,
where loans of each vintage perform worse than those of prior
origination years ( gure 1). Such a signal calls for a close
examination of P2P lending practices. We exploit a compre-
hensive set of credit bureau data to examine P2P borrowers,
their credit behavior, and their credit scores. Wend that, on
average, borrowers do not use P2P loans to re nance pre-
existing loans, credit scores actually go down for years after
P2P borrowing, and P2P loans do not go to the markets under-
served by the traditional banking system.1 Overall, P2P loans
resemble predatory loans in terms of the segment of the
consumer market they serve and their impact on consumersˉ
vised for antipredatory laws, lawmakers and regulators may
need to revisit their position on online lending marketplaces.
Three Myths about Peer-to-Peer Loans
Yuliya Demyanyk, Elena Loutskina, and Daniel Kolliner
Peer-to-peer lending platforms, which provide a way for individuals who want to invest to lend to those who want to
borrow, have experienced phenomenal growth in the past decade. Many praise the industry and maintain that P2P
loans provide unique bene ts to consumers. We examine a comprehensive set of credit bureau data to examine
P2P borrowers, their credit behavior, and their credit scores. We demonstrate there is little evidence of these bene ts.
In fact, P2P loans resemble predatory loans in terms of the segment of the consumer market they serve and their
impact on consumersˉnances.
Figure 1. Delinquency Rates by Loan Vintage
Panel B: Subprime MortgagesPanel A: Peer-to-Peer Loans
Source: Demyanyk and Van Hemert (2011).2610142006
2007
2010
2011
2009
2013
2012
2008
Loan age (years)
Percent delinquent
2001
2002
2003
2004
2005
2007
2006
Loan age (months)
3141312111098717654151651525
Percent delinquent
Sou
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