Zopa Review for Investors (Peer-to-Peer Lending)

It’s been about 4 months I have been investing with Zopa. That’s not a long time, but this Zopa review sums up my first experience with this peer-to-peer lending platform.

Questions like… How much can I make? Will I lose money? What if I want to take my money out early?

I find the concept of people lending to other people really fascinating. It’s one of the modern ways of skipping the expensive middleman (hello banks!) using technology. Another example is Airbnb, where people “lend” their home and TransferWise where people exchange foreign currency skipping the expensive bank rates. It just makes our world fairer.

So I had to try Zopa as an alternative investment in my portfolio. Especially after it received full FCA authorisation and they will soon be offering the new IF-ISA. This means tax-free profits plus more credibility!

What is Peer-to-Peer lending?

Peer-to-peer Lending Zopa Model

Bob wants to borrow money for home improvements. Alice wants to invest her savings and earn some extra money. Peer-to-peer lending brings those two together.

Alice wants to get her money back plus some extra profit. Therefore, she wants to lend only to credible borrowers who will return the money she lent.

Bob wants to pay as little as possible for getting a loan from Alice. But Bob’s credit history is not that great since he’s had a few late payments on his credit card history. To compensate for the extra risk, Alice wants to charge 10% interest for lending to Bob.

Credible Charlie, on the other hand, has been an excellent payer in his whole life. Alice would love to lend to him. But credible Charlie wants to pay very little for getting a loan from Alice since it’s very likely she’ll get her money back. Charlie wants a 3% interest loan.

Alice wants to make sure she lends her money to multiple credible people and a few less credible for extra profit. She wants to spread her risk.

Alice, Bob and Charlie know that if they could handle the payments between them, they could skip going to the bank and avoid being charged a service fee.

The above story dear friends is the problem Zopa is solving. It matches thousands of people with different credit history and makes lending a beautiful hands-off experience.

Zopa understands the needs of those groups and matches them together without the need to even talk to each other. It distributes the payments every month and makes sure everyone gets paid in time. Sounds like a sales pitch, but let’s see what’s that all about.

How much can I make with Zopa?

This is my investment statement of the Zopa Plus product (up to 5-year loans). As you can see, the average return is around 6.7% and there are no fees for investing. So you lend £10,000 you get back £650 in a year. The longer the loan term the higher the interest because your money is lent for longer.

Knowing myself, I want the highest return and I’m in the for the long term, so I wanted to lend to up-to-5 year loans. Here’s a view of my investment summary:

Zopa My Investment Summary
Caption: As you can see, I made about £300 in 3.5 months. The money is lent at 11.8%, but some people do not pay back (bad debt). So the actual return is around 6.7%.

Investing in 5-year loans doesn’t mean your money is locked in or inaccessible. You can always sell the loan and withdraw early for a 1% charge of the outstanding amount.

Also, you don’t have to invest £12,000 like I did. You can start with as little as £10.

I’m getting paid monthly and this includes interest plus capital repayment. I have set it up to automatically re-invest my monthly earnings and grow my pot as soon as possible. Compound interest to the rescue!

This is what I love the most: automatic reinvestment. So if I let my £12,000 work the full 5-year period while reinvesting the profits, the final amount will be …drum roll please… £16,759. A 40% increase! That’s the magic of compound interest.

There is another product called Zopa Classic for those who are not comfortable having loans written off. In Zopa Classic you can earn around 3.7% and any losses from bad debt are covered by a Zopa fund created for that reason. Borrowers are also of higher credit score. So, if the borrowers do not pay, Zopa Safeguard fund will.

For those that need access to their money without having to pay any fees, they provide the Zopa Access. As the name suggests, you can move cash in and out but the return is just 2.9%.

If you ask me, the low returns on Zopa Access and Zopa Classic are not really worth it. If you’re going to do it, go for the 5-year high returns and sell on the way if you need the money earlier. You’ll still end up ahead.

Why Zopa?

1. Survived a financial crisis.

I thought that if I’m going to invest in alternative investments I better do it using a platform that has gone through at least one financial meltdown and survived. Zopa is the only platform that was founded in 2005 and therefore survived the 07-08 financial crisis.

Zopa Actual and Projected Returns

Did investors lose their money? The answer is no. The default rates increased to 5.33% but the borrowing and lending continued, business as usual.

So the returns were reduced to 3.33%. You would’ve gained £33 per £1000 lent. That’s pretty good if you think that the stock market (FTSE 100) lost about 31% of its value during the same period! People really lost money back then.

2. Long history of loan data

Another strong reason I liked Zopa was the fact they’ve been around for more than 10 years. This means they have a long history of loan data to analyse and make informed decisions when matching borrowers and lenders.

The actual vs expected returns are extremely close, which makes investors like myself sleep well at night. I wish I could say the same for Funding Circle which promised 7% returns but ended up returning 2% a year later.

3. Trustworthy culture

In times like these, you can tell whether the managers want just profit or put the customer interests first. Zopa recently received a flood of people who want to lend money and a shortage of borrowers.

They decided to stop signing up new lenders until the balance comes back again. This shows to me they really care about their investors, since they could have easily dropped the interest rates and continue to make a profit. Seeing their future returns getting lower is something that would bring disappointment to loyal investors, therefore, they decided to keep the rates stable at the cost of not registering new customers.

Seeing their future returns getting lower is something that would bring disappointment to loyal investors, therefore, they decided to keep the rates stable at the cost of not registering new customers. Ratesetter, on the other hand, dropped their rates but they still accept investors.

4. Customer service

This is quite important. If I put my money somewhere I want to make sure I can talk to someone who knows their stuff. I spoke with a customer representative over the phone who was quite friendly and answered all of my picky questions.

Things like “what if I borrow from you and lend it to your customers” or “what was the reason for the recent investor rates drop?”. Customer service has been excellent so far.

Is my money safe? What if Zopa goes bust?

A risk when investing in these so-called innovative investments is that they have no real history to prove their resilience.

Take the stock market for example. The stock market has over 100 years of historical data and it’s a very well-established way of investing. It’s definitely not risk-free but you know that there will be stock market crashes, money loss and all doom and gloom for a couple of years until it rises back again.

Because peer-to-peer lending is fairly new (Zopa was founded in 2005), we don’t know what we don’t know – if you know what I mean 🙂

Only one platform faced a financial downturn so far, and although investors did not lose a penny, this doesn’t mean it cannot happen in the future.

Also what happens if Zopa as a company goes bust? What if Zopa is not sustainable anymore and goes out of business?

Zopa has covered this scenario. If Zopa goes out of business the monies will not be lost as it’s held in separate accounts from its own funds. All loan contracts are between us investors and the borrowers and they would continue to apply even if Zopa declares bankruptcy. You can read more about their contingency plan here.

-> Thumbs up for the transparency regarding failure and the open loan books which are publicly available.

To reduce the risk of lending in only one platform I have split my investments between Zopa and Ratesetter, a similar peer-to-peer lending platform. Review to come soon…

Zopa sign-up process was quick

I applied online and a Zopa employee called me for identity check and documents verification. I sent a copy of my passport the same day and my account was ready the next day. Things moved quickly which I really appreciate in a company.

I didn’t really like the fact that they asked me to send my passport via e-mail. Zopa if you’re reading this please build a platform for uploading documents. E-mail is not a secure way of communication.

I made an online transfer to the Zopa bank account they had given me. In about 5 days, they matched it with borrowers and from that day on, I began making a profit 🙂

A Zopa employee called me again 10 days later to ask if I’m happy with the service and whether I have any questions. Well done I said… The 9.7-star rating on Trustpilot reflects the quality of service I’ve received so far.

My eggs in many baskets

Once my money is lent I get an investment summary of my loan book in more detail.

As you can see, even if I invest in Zopa Plus which is up to 5-year loans, I really get shorter loans, which is great! I get to keep the high returns while half my loans will complete in less than 5 years.

Risk distribution and loan length

Zopa does not lend more than 1% of the money to a single borrower to make sure our risk is spread to as many people as possible.

Final thoughts

Peer-to-peer lending is an interesting field. We will have to wait and see how it plays out in the long run but right now is a very lucrative investment.

Many people have already realised it and this is why Zopa had to stop accepting new investors until the balance comes back up again.

Zopa is not perfect but I strongly believe it’s a company with good ethics and culture. It tries to be as transparent as possible and it puts investors and borrowers first.

I’m not 100% convinced about the resilience of the peer-to-peer lending as an investment for the long-term and I’m trying to be cautious. Yet I don’t want to miss out on this great way of investing which -bonus points- is completely hands-off.

I will, therefore, keep a portion of my investments split between Zopa and Ratesetter and report the progress back to the blog every 3-6 months.

Ratesetter is a similar peer-to-peer lending platform where you can actually set the rate you want and lend to other people. I really like it, despite the slightly lower returns (5.9%) and I will write a review soon.

Stay tuned!

I have not been paid to write this Zopa review. I just want to share my opinion about peer-to-peer lending which has received quite some criticism from the industry. Having said that, I will get paid if you sign up using my link but that will not cost you any fees or impact your returns. Once you sign up you can share your link too and make a small profit. And thank you!

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    10 thoughts on “Zopa Review for Investors (Peer-to-Peer Lending)”

    1. Hi Michael
      I just read your blog with interest.
      I signed up to Zopa back in 2006 when you could choose the rate of return similar to how ratesetter does now, but it come with it own problems of money sitting uninvested trying to match with possibly higher risk borrowers.

      • Hi Dave,

        Thanks for your insights! Being such an early p2p investor in Zopa, you probably know it more than anyone. I don’t mind the current automatic selection of loans but what I do mind is the drop in rates from 6.5% to 5.4% recently. Have you tried any other p2p platforms since then?

    2. Hey Michael,

      I really enjoyed your articles, particularily the one about investing your LTD company’s money. I wanted to ask you if you opened the Zopa account in your or your company’s name (the equivalent of a personal or a business account if zopa were a bank)? I’m asking since it would make sense if you’re investing the company’s money to create the account in your company’s name, but I couldn’t find how to do it for Zopa (and you mentioned passports, which sound like a personal identification and not a business one).

      Could you please ellaborate?

      • Hi Alex and thanks for your comment!

        You can open a company account with Zopa. Although it’s not mentioned on the website, give them a call and they’ll let you know what company documents they need. I’ve done it before and found the process easy to follow.

    3. Hi Michael,
      Really enjoying all your articles.
      I’m also looking to invest company profits. I’ll look into some of your suggestions and monitor them for a while.
      What do you make of Zopa’s “Market rate adjustment fee” when selling a loan? I got burnt with a similar thing with an endowment policy in the 2000s. I think this makes Zopa far more risky than cash. Ratesetter don’t seem to have the same catch. What’s your view?

      • Glad you’re enjoying the blog articles, Andrew. Zopa’s adjustment fee is not a catch per se. Similar to how bonds work, if a new bond paying a higher interest is on sale for the same risk/category, then your current bond should sell for a lower price if you try to sell it. Makes sense. I never use the sell function, but let the loans complete. This way you take your money back without extra fees.

        This period of time, Ratesetter pays a higher interest and they also cover losses using a provision fund. I quite like this.

    4. Thanks Michael,
      As you say Zopa is similar to the bond market where your capital is not safe. When interest rates shoot up the value of long term bonds plummets. Your idea to let the loans complete is good. Just hope we don’t need the money for something else in the meantime….
      Keep up the good work.

      • Hi Andrew, Zopa is in no way similar to the bond market when it comes to capital safety. I find Zopa much riskier (and speculative) compared to a long-term government bond.

        What I meant is that selling Zopa loans before their expiry date behaves similarly to how selling another type of loan (e.g. a bond) would behave if you try to sell before their expiry date. But when it comes to capital preservation, there is a higher risk of Zopa defaulting until maturity, compared to a gov bond.

        Another crucial difference I see has to do with selling at a higher price. You can usually sell a bond at a higher price when interest rates plummet, but you cannot sell a Zopa loan higher.

    5. If I set up a limited company for investment, such as buying shares, btl and peer 2 peer lending, what is the SIC code for peer 2 peer lending


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