Lending money through Zopa?

Scorpiomarie

Hi all, I've come across a website called Zopa and I am thinking of lending money with this website because it has over 5% interest with a five year loan, and it sounds like a great place to make money with my own money that I'm willing to put into the website. I've looked into it a lot and now I think I should get opinions from people who have already started lending to them, how much did you lend and how much did you make in the end? I'm really interested in this, thanks very much

Here is a their website: http://www.zopa.com/

bowlhead99

There are plenty of people on this site that have used Zopa and I'm sure they will give some comments shortly. A couple of things to be aware of:

1) the site has been running for a few years, so many of the initial lending will have been done at rates much higher than the current market conditions of low interest rates. So 'how much did you make in the end' is not necessarily of what you might make from here and now.

2) individual loans made to people may go 'bad', in other words they never pay back or they only partially pay back. The 5% rate is a guesstimate after Zopa take their fees and an assumed low proportion of the loans don't pay back. You have to pay tax on all the money you earn as interest even if some of your borrowers don't pay you what they should have.

3) If you want to get a big chunk of your money back before the 5 years is up (either because you see nice safe bank rates elsewhere at 4-5% in a few years time, or you need it for something else), you can't simply close your account and get the money back with a small penalty. Your only option is to sell the loan to someone else second-hand, and you might not get as much for it as you would like.

4) If you don't want to get your money back before the 5 years is up (like a fixed deposit in the bank), then tough, because people will start paying their loans off including interest and some principal each month. So you'll end up with 'spare' money in your account no longer invested. Then you need to decide if you want to take it out, or re-invest in lending it to someone else for another fixed period (which might need to be another 5 years from that point if you want the highest rate then available).

Basically this isn't like using a bank account to get your returns (e.g. 2.7 to 3.1% for 3-5 years at Aldermore). It works differently and you don't get the £85k of FSCS protection in the event that individual lenders or Zopa themselves go bust. You should consider it as an 'investment' (a loan to a bunch of private individuals) rather than 'savings'. It has extra risks - which is why you are able to get a better rate than with a bank.

To me, it is not enough of a premium over bank rates, and not so much safer than other investment options in the long term, for me to go for it - particularly as I'm a high rate taxpayer and can't put this sort of investment into my ISA or a pension. But there are a lot of these peer-to-peer lenders around and some people swear by them.

MadMat

As they are currently offering 5.2% in return for tying your cash up for 5 years, I think I'll be sticking with a collection of TSB 5% current accounts for now . ..

lalman

I used to lend through Zopa afew years ago.. I was getting a great return between 10-14% but it didn't last long I am afraid.

As bowlhead99 very clearly and I must say well explained - there is a risk element to Zopa and the defaults mounted up. Although I didn't lose money net, the profit or interest was far below the 10-14%.. more like 2-4%. I may have been unlucky with the people my money got lent too but what I would suggest... if you are still interested, I would probably include it as part of my investment portfolio rather than putting all your savings in it. As MadMat says use TSB or the Santander 123 account....

Hope that helps...

ChesterDog

I have used Zopa quite a bit for a few years and did pretty well with it, but they changed their business model to that of Ratesetter, and the interest rates on the latter have generally been a little better than Zopa's for some time.

It's a good source of diversification, another string to a well-strung bow, but as others have said, the rate-to-risk ratio isn't terribly mouthwatering really.

skid112

my experience with Zopa was pretty much the same as lalman, started off well but deterioated rapidly and the bad loans stacked up

Scorpiomarie

Thank you all for the replies, I understand the risks and am still interested in putting a small amount of money in there to see how it goes. and if I get a good experience using Zopa then I might put some more money in, thanks again x