You may have only just heard about peer-to-peer lending (P2P) but it is older than you think as we (Zopa) invented the concept back in 2004, and have been lending other people’s money for over nine years. We therefore like to think we know a thing or two about it. And although we have now been around for almost a decade, there are still some things we think you should know about us.
So here are five key things you need to know about Zopa and peer-to-peer lending before you consider becoming a lender:
1. Great returns
Peer-to-peer lending through Zopa offers solid, inflation beating returns of over 5% on the money you lend after fees, expected defaults, but before tax giving you a great return on your hard earned savings. We do this by matching lenders and borrowers directly, so any interest earned goes directly to you, which we think is how it should be.
Funds you lend through Zopa are not guaranteed by the Financial Services Compensation Scheme, and there is always the risk that borrowers will not pay you back, so the higher return does come with risks to your capital. However, we have a solid track record of managing risk and only approve the most credit worthy borrowers as discussed in the second thing you need to know about Zopa…
2. Reducing the risks
Peer-to-peer lending is not risk free and carries relatively more risk than traditional savings accounts but is less risky than investing in stocks and shares. Zopa takes credit risk very seriously, and we have a number of policies that reduce your risk when you lend through our platform:
I. Credit Checks: We perform strict credit checks so that only the most credit worthy borrowers are approved. Our sophisticated credit model checks against the major credit ratings agencies, as well as using other forms of data, we also carry out additional background checks, including verifying the applicant’s identity, employment status, income level and their ability to afford the monthly repayments. We are a member of CIFAS, the fraud prevention service. We have the best record of managing risk of any UK bank or peer-to-peer lender.
II. Diversification: You only lend your money in small chunks so your lending is diversified across many borrowers, that way not all your money is with one person and the risk is spread. So if one borrower cannot pay you are less likely to lose your capital, although your overall rate of return may go down.
III. Safeguard fund: We created the Zopa Safeguard fund to step in if a borrower defaults and cannot repay their loan. Read more about the expected and actual default rates. If a borrower misses more than four monthly repayments the Safeguard fund automatically repays the lender for that borrower’s loan in full, including any interest owed. The Safeguard fund contains over £4.3million. It has covered all bad loans since it launched and is funded to cover more than the expected level of defaults but of course there is some risk it may not always be able to do so in the future. It’s held in trust by a not-for a profit company, but it’s not covered by the Financial Services Compensation Scheme.
3. More Control
In addition to offering lenders great returns, Zopa lenders have the ability to choose their lending term and can switch between the longer or shorter market. Zopa also allows lenders to choose how they use their repayments as they can automatically relend them into the market to earn even more interest or have their repayments build up in their account to then withdraw.
4. Social Power
Lenders use their personal savings to help real people rather than give their money to a faceless bank. The money they lend helps sensible, creditworthy borrowers buy new cars, pay off their credit card debts, make home improvements and helps grow British businesses. You can see all the information of each loan for complete transparency. We think this is a force for good as the added social element means that some borrowers are more aware that they are paying back real people and four out of ten borrowers pay their loans back early meaning lenders get their money back sooner.
5. Consistency and reliability
Zopa is the UK’s largest and oldest peer-to-peer lending service. We’ve helped over 54,000 people lend more than £560 million to over 80,000 sensible and creditworthy borrowers, returning over £36m in interest to our lenders.
We have consistently won industry awards for our excellent customer service such as ‘Most Trusted Personal Loan Provider’ in the Moneywise Customer Awards for the past five years running, and have also been voted ‘Best Customer Service’ in all financial services by Moneyfacts and ‘Best Peer to Peer Lender’ by Moneynet. Our successful track record and 9 solid years’ worth of knowledge has helped us become the UK’s leader in peer-to-peer lending. We’ve remained in good shape throughout the credit crunch, with no need for a bailout.
We hope this has provided a good understanding of how peer-to-peer lending works through Zopa, the returns on offer and risks involved but for more information please visit zopa.com/lending or feel free to drop us a line on 02075806060 and speak to our customer team.