Zopa Review – My Unbiased Peer To Peer Lender Review

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zopa review

Zopa Review

** Zopa review updated August 4th 2017 **

News: Zopa will be discontinuing its original Classic and Access accounts on December 2017. The newly offered Core account (for new customers) has no provision fund protection. Zopa’s IFISA is now available. My Zopa review highlights my experiences as a lender and the pros and cons of investing.

Founded in 2005, Zopa is the largest and oldest peer to peer company and one that survived the 2008 financial crisis. That is quite an achievement considering the carnage that was left in the wake of the mortgage meltdown. Zopa has 60,000 active investors who have lent over £2 billion to borrowers. Zopa is incredibly easy to use and offers two simple investment choices (standard and ISA) that should appeal to a wide range of peer to peer lenders. The discontinued Access and Classic accounts and the removal of the Safeguard Provision Fund is a recent negative change for those wanting the lowest possible risk levels.

My August 2017 Allocation: Unchanged
My current and expected annual rate of return: 6.2% (After fees but before taxes)
Est. Annual Returns:3.9% - 6.1%
My Plus Risk Rating *:
Launched:2005
Early Exit:
Autoinvest:
ISA Available:
Loan Security:None, consumer loans
Provision Fund:
X
Lender Fees:1% loan exit fee
Min Investment:£1,000
Avg. Portfolio Size:£11,000
Time to Become Invested:Medium but varies depending on demand
Time Needed Managing:
Zero
Lending Agreements With:Borrowers
FCA Regulation:Full
Cashback Offer:
Sign Up For A Free Account

* This opinion risk factors in loan types, interest returns, company history, default numbers and my own investing experience. Risk rating explained here.

The Zopa Review: What You Need To Know

Zopa Review Pros
  • Established 2005 / safer peer to peer lending option /  survived 2008 financial crisis
  • Transparent loan book information
  • Existing Access and Classic account loans continue to be Safeguard protected until 2022
  • ISA available
  • Completely hands off automatic diversification and reinvestment
  • Low default rates
  • Possible to exit loans for a fee / My test exit took 48 hours
  • Easy to use website with simple investing options
Zopa Review Cons
  • New Core account now contains no Safeguard Provision Fund and pays lower returns
  • 1% exit fee
  • Higher demand can mean it takes time to become invested
  • Loans are unsecured
  • Company operated at a loss for many years

Read more below in my exclusive Zopa review.

Equivalent Competitors

Ratesetter, Lending Works, Growth Street

Zopa Review: My experiences so far….

I spent several months researching Zopa and their operation before decided to invest with them. Despite opening my account in 2015, I had previously steered clear of Zopa because I was put off by their financial losses as a business. After further research, I decided to give Zopa a try. I particularly liked Zopa’s growth and the actions they took to protect their loan quality and lender’s interest by limiting new investors due to unbalanced demand and supply. This freeze showed Zopa’s willingness to maintain their loan quality and protect both their business model and their lenders. I have noticed that it can take some time to match funds to loans, mainly because of high lender demand.

Zopa is very simple to use as lenders choose from two products with different risks.

I was surprised to see Zopa announce it would be discontinuing its instant Access and Classic accounts in December of 2017 and replacing them with the non-Safeguarded Core account. Zopa has always been heralded for being one of the safest peer to peer lending options. The future removal of the Safeguard Fund is a bold decision that could make Zopa too risky an investment proposition. Since I use the higher return paying Plus account that has no Safeguard protection, this change doesn’t affect me directly although I am keeping a close eye on Zopa for further changes.

I recently tested the exit process and it took 48 hours for the sale to complete.

I’m going to give my investment a few more months but impressions so far are that the risk I’m taking in the Plus account might not be worth the returns; 25% of my portfolio is invested into the highest risk band level “E” paying 25% returns.

What Is A Zopa?

Zopa is a peer to peer lending company where lenders loan money directly to unsecured consumer loan borrowers via two products, Core and Plus. Borrowers can take loans for up to five years. Lenders funds are either split into £10 parts and spread across at least 100 loans (Core product), or lent to a “sensible” amount of borrowers in the Plus product. The three different products offer different return rates due to the varying levels of risk, exit availability and fees.

Hands-off reinvestment of interest and capital repayments happens by a click of a mouse button, so there’s no need to spend time watching your account.

How Can I Contact Zopa?

Web
Email: contactus@Zopa.com
UK Tel: 020 7291 8331

When Did Zopa Launch?

2005

Are They Regulated?

Zopa is regulated by the UK Government’s Financial Conduct Authority #563134 under full permissions. Remember that peer to peer lending isn’t covered by the FSCS (Financial Services Compensation Scheme). The FCA does have the ability to pursue criminal action against companies that violate its standards, but the FCA is not a government entity and it is funded by the very companies it regulates.

Zopa is also a member of the Peer 2 Peer Finance Association.

How Do I Sign Up?

Sign up for Zopa and receive a £50 bonus when you invest £2000. (Sometimes Zopa’s lender demand become too high and the company closes to new investors. If this happens, check back frequently. Zopa pays me a small referral fee at no expense to you. When you sign up for an account through my website, it allows me to continue updating this Zopa review and continue writing new reviews at no cost to you.)

** Please note that Zopa periodically freezes new account sign ups. This freeze is to curb high lender demand. You can sign up for their email alert which will notify you when the freeze is lifted. **

Who Can Open An Account?

Any person 18 years or older who is a UK resident, has a UK current account and can pass the verification checks.

What’s The Signup Process Like?

Easy; I was verified by providing identification documents and my account was opened within a few hours.

How Much Time Will It Take To Become Invested?

Zopa’s lender loan matching times varies based on demand and loan supply.

Last weeks queuing / matching days were:

Access: 0  / 4
Classic: 3 / 0
Core: 0 / 5
Plus: 7 / 3

What’s The Minimum Deposit / Investment?

Zopa Core: £1,000
Zopa Plus: £1,000

All amounts are automatically diversified across many borrower loans so no manual lending is needed. This saves you lots of time.

How Are Deposits Made?

You can deposit via bank transfer which is how I make my deposits. If you are feeling a little old school, you can send a cheque but who does that nowadays?

Does Zopa Offer An Innovative Finance ISA?

Yes but only to existing customers. This is due to the expected high demand.

Opening an ISA is very simple. From your dashboard, just click the Open An ISA button:

zopa review

Add a product…

zopa review

Accept the conditions…

zopa review

And you’re done.

The ISA’s products are identical to regular account products.

What Are The Different Lender Products?

Zopa Classic (Discontinuing in Dec 2017): Loans are covered by the Safeguard Fund. Only available to existing customers who had accounts prior to June 15th 2017. Existing customers will be able to buy loans through the Classic account until December 2017. All loans up until this date will be protected by the Safeguard Fund until the loans mature.

Zopa Access: (Discontinuing in Dec 2017): Instant access account where loans are covered by the Safeguard Fund. Only available to existing customers who had accounts prior to June 15th 2017. Existing customers will be able to buy loans through the Classic account until December 2017. All loans up until this date will be protected by the Safeguard Fund until the loans mature.

Zopa Core: Core is the new replacement for the Access and Classic accounts. Core has a £1,000 minimum investment and lenders’ funds are split into £10 slices and automatically invested across multiple borrower loans. No more than 1% of your total deposit will be invested into a single loan. For example, if you deposit £2,000, you will be invested into 200 loans. This provides lenders with instant diversity and lower risk. Borrower risk levels are considered between A and C. The Core account isn’t covered by any Provision Fund so the risk level has increased. If you want to exit your investment, there is a 1% fee*.

Zopa Plus: Plus also has a minimum £1,000 investment requirement and a 1% exit fee*. Plus offers higher returns for those willing to take more risk. Where does the extra risk come from? Borrower risk levels are considered between A and F and the product is not covered by a provision fund.

* Exit depends on there being lender demand to buy you out of your loans. Ability to exit is never guaranteed.

I’m Confused. Give Me A Summary Of The Upcoming Account Changes?

Zopa’s new account changes are a tad confusing so here’s an explanation.

  • New customers will not be able to buy Safeguard protected loans through the instant Access or Classic accounts.
  • Existing customers are able to buy Safeguard protected loans through their existing Access and Classic accounts up until December 2017.
  • Existing customers who were invested in loans through the Access and Classic accounts will continue to be protected by the Safeguard Provision Fund until approximately 2022.
How Are My Loans Allocated?

All loans are allocated automatically. Zopa has a pretty detailed information page where you can see exactly which risk bands your money is invested in and the loan time lengths:

zopa review

Here is a breakdown of my personal portfolio showing returns and how much is invested into each risk band:

Risk BandReturn RateTotal % of Portfolio
A*3.3%12.3%
A14.5%9.7%
A24.7%15.2%
B9.1%23.2%
C112.5%11%
D18.3%20%
E25.1%25%

You can even download your entire loan book. From your dashboard click loan book then click the big blue button at the bottom of the page:

zopa review

How Much Interest Does Zopa Expect Lenders To Earn?

Core: 3.9%
Plus: 6.1%

(Rates do change from time to time. Return estimations are capital weighted averages minus expected principal loss and any fees.)

Is Interest Paid Immediately Or When Loans Begin?

Interest accrues as soon as your funds are allocated to loans. If you money is in the loan queue, you will not receive any interest until it is deployed.

When Is Interest Paid?

Interest is paid whenever borrowers make repayments. Borrowers repay both capital and interest on any given day.

Am I Lending To Zopa Or The Borrower?

Zopa is a true peer to peer lending company so lenders have loan agreements with borrowers. Thumbs up to Zopa.

What Are The Fees?

Zopa makes borrowers pay a fee so lenders don’t have to but if you decide you want to exit your investment early, the following fees apply:

Core: 1% exit fee
Plus: 1% exit fee

One way to avoid these fees is to simply turn off your reinvestment instructions so when borrowers repay loans early, which they often do, you will be able to withdraw the money from your account fee free.

This is how you disable reinvestment from your main Summary page:

  1. Click the small arrow next to the account you want to change:


Zopa review

 

2. Click the Manage Settings link:

Zopa review

3. Choose the option:

How Much Time Will I Need To Spend Managing My Investments?

Zero. Zopa is mainly a hands-off product so you won’t need to log into your account very often.

How Long Are The Investment Terms?

Borrowers take loans up to five years but often loans are repaid early. As long as there is lender demand and you are willing to pay the applicable exit fees, you can exit anytime.

Is There A Secondary Market To Buy, Sell And Exit Loans?

Yes, sort of. When you want to buy, the system automatically invests our requested amount into loans. There’s no differentiation between primary market and resale loans for buyers. To sell, there is a 1% administration fee and being able to sell is based on demand.

I recently tested the exit process by putting a portion of my account balance up for sale. The selling process took 48 hours after which, the money was put into my holding account. So yes, the secondary market works.

What Security Does Zopa Lend Against?

Zopa gives personal consumer loans for items such as debt consolidation and weddings. All loans are unsecured.

What Are The Reported Loan Default Rates?

2017 expected: 4.89%
2016 expected: 4.1% / actual: 0.6%
2015 expected: 2.91% / actual: 1.88%
Lifetime expected: 2.3%

Zopa’s default rates have been rising but are still reasonable. You can see current default statistics here.

What Are The Main Risks?

Company Failure: This is a risk with every single peer to peer lending company. If Zopa fails, even though Zopa has made failure provisions, investors could lose all of their money though it’s more likely they would lose some rather than all. Zopa is finally turning a profit and is extremely well funded so failure isn’t likely.

Borrower Defaults: Since Zopa lends to consumer borrowers, defaults are always a possibility. Thankfully Zopa has kept defaults low by lending to credit worthy borrowers.

Lowering of underwriting quality: Zopa’s history has demonstrated a high underwriting quality so I have no reason to think this will change. Zopa used to reject most loan applications but they have eased up on their requirements due to increased competition in the peer to peer space.

Is There A Provision / Safeguard Fund?

Loans within the Access and Classic accounts will continue to be covered by the pre-existing Safeguard Provision Fund until all existing loans have reached maturity. All existing customers will be able to continue to buy loans through the Access and Classic accounts until December 2017. After December 217, all new loans will not be Safeguard protected.

New customers will only be able to buy loans through the Core account which is not Safeguard protected.

Zopa’s reasoning for eliminating its Safeguard Provision fund has never been clearly explained, although I suspect their fund might have been heavily used as defaults appear to have risen.

It would have been nice for Zopa to reward lenders’ with a return increase since more money should be available with the removal of the Safeguard Fund.

What Happens If Zopa Goes Bust?

Should the worst happen, any un-lent money is held in a bank account separated from Zopa’s assets. Since lenders and borrowers are contracted between each other, borrowers would continue (in theory) to make payments to lenders via the trustee. The trustee would handle the wind-down process and Zopa states that the borrower fee would cover the administration costs of future loan collection.

Usually, I’m somewhat pessimistic when discussing company failure but it seems as if Zopa has provisions in place to protect lenders. Lenders’ may lose some money if the Zopa were to fail so let’s hope Zopa stays in business as a failure would be catastrophic for the peer to peer lending industry.

THUMBS UP FOR ZOPA:

Established 2005 – Safer Peer To Peer Lending Option

Zopa is the oldest known peer to peer lending company and is considered one of the safest since it survived the 2008 financial crisis. Their underwriting team is experienced and seems to be keeping the loan default rates low. From a company longevity perspective, Zopa is relatively safe however because of the upcoming removal of the Safeguard Provision fund, I consider the investments a little riskier now.

Existing Access And Classic Account Loans Will Continue To Be Protected By Safeguard Provision Fund Until 2022

While the future discontinuation of the Safeguard Fund is bad news for lenders’, at least the fund will continue to cover existing loans until their maturity. Also, existing customers are able to buy Safeguard protected loans through their existing Access and Classic accounts up until December 2017.

Information And Loan Transparency

Some peer to peer companies aren’t very transparent with regards to statistics, loans books and data. Zopa, however, is quite the opposite providing full statistics and data. You can view your loan book here:

zopa review

You can also so your expected payment schedule:

zopa review

This page shows you how many borrowers have missed payments:

zopa review

From the Loan Book page, you can even download your entire loan book.

I appreciate Zopa’s approach to providing lenders’ with transparent loan book information.

Completely Hands Off Investing And Reinvesting

Peer to peer lending can be very time consuming, however, Zopa eliminates the need for account monitoring by using a set and forget system. Simply choose which product you want to invest in and where you want your repayments and interest to go. You can even decide to reinvest into a different product.

Low Default Rates

Zopa’s high underwriting quality has kept the default rates down to 0.6% for 2016. The lifetime default rate is estimated to be 2.3%. Even during the 2008-2009 financial turmoil, Zopa’s default rates were only a little over 4%. When you consider borrowers are given unsecured loans, the default rates are impressive.

Secondary Market

Zopa offers lenders a possible exit through their secondary market provided there are lenders to buy your loans. If the interest rates on your loans are lower than current rates, buyers will be credited with the extra amount of interest to offset the difference. The youngest loans are sold first until the requested sale amount has been reached.

Exiting of loans is always based upon the loans being in good standing and there being lender demand, but providing demand exists, simply decide how much you want to sell and let Zopa do the rest. Lender demand has always been strong and I haven’t heard of anyone having a problem exiting their loans.

Don’t forget Zopa charges a 1% exit fee.

The Website

It’s very easy to use and looks great. Here is the Portfolio dashboard:

zopa review

THUMBS DOWN FOR ZOPA:
Low Rates For Increased Risk / Removal Of Safeguard Provision Fund

While savings rates remain at historically dismal levels, Zopa’s Core product still underwhelms compared to the offerings of some other peer to peer companies. Since the removal of the Safeguard Provision Fund, I consider the Core product to be a poor choice as its even riskier. Even the Plus product which pays a higher return isn’t particularly attractive considering that my portfolio is so heavily invested in high risk band loans.

1% Exit Fee

If you decide you want to exit your loans, be prepared to pay Zopa’s 1% exit “admin” fee. Whilst I understand why Zopa has exit fees, I still dislike them.

Higher Demand Can Mean It Can Take Time To Become Invested

This is true for both new investments and re-investments. If your money is sitting in a queue like mine is here…:

Zopa review

…you won’t earn any interest. Under normal lending conditions, the amount of money in my queue is relatively small.

My initial investment took 15 days to be fully deployed but times can vary depending on demand. This investment deployment time can affect your annual return rates and while it’s hard to say by how much, I predict about -0.25%.

Zopa is very proactive when dealing with excessive lender demand. In June 2017, Zopa put a stop on all new lender deposits when lender demand was much higher than borrower demand. Zopa has also introduced its ISA which will only be offered to existing customers to curtail demand.

Loans Are Unsecured

Zopa’s consumer loans are unsecured which makes the loans more vulnerable during an economic downturn. I have confidence in Zopa’s underwriting standards so I’m not too concerned. Also, Zopa survived the 2008 worst financial crisis and is the only peer to peer lending company to have done so.

Company Operated At A Loss For Years

I believe it’s important to look at a peer to peer companies financial health before investing. It is also important to look at the circumstances behind the company accounts and any future plans.

Since 2005, Zopa has posted losses of over £20 million but most f its losses were due to startup, scale and growth. Thankfully Zopa is well funded by experienced venture capital companies.

In October 2016, Zopa’s CEO announced the company was finally operating at a profit and that it would continue to do so in the future. While this is good news for lenders, it will be nice to see some history of Zopa’s profitability over the next few months.


My Strategy

Zopa received my first investment in late 2016. I only invest in the higher paying Plus product because the added risk has netted me 3%+ in expected extra returns. I set all capital and interest payments to reinvest. I plan on performance testing Zopa for an additional six months to decide whether or not to continue. I’ll be paying close attention to missed loan payments and to Zopa’s account changes. The low-risk Classic and Access accounts will be taken out behind the shed and out to rest in December 2017. I think the removal of the Safeguard Provision fund means increased risks to lenders’ and I certainly wouldn’t invest in the low paying Core account. If you are risk averse, there may be better options such as Lending Works, Growth Street and even Assetz Capital. The beauty of Zopa is you don’t need much of an investment strategy. Just choose your product, decide what to do with payments and you are done.

Zopa Review Conclusion

Zopa’s recent account changes have led me to question if I’d invest if I were a new lender. The answer is I’m not sure. With the removal of the Safeguard fund in December 2017, it will be interesting to see future performance. I don’t think the new Core account is worth the risk since the returns are relatively low for a non-protected product. I do like Zopa’s strong track record and longevity and I hope that they will continue to lead the peer to peer industry forward.

Despite the downsides, Zopa does makes it very simple for anyone to invest in peer to peer lending by offering two simple products with different returns and risks. The newly introduced ISA will be appealing to those looking for tax relief. The lower risk Core product won’t win any return awards so for me, the Plus product is worth the added risk for the higher returns. High lender demand is creating cash drag so you can expect your returns to be lower than advertised until borrower demand increases. Despite the issues, I still think Zopa’s worth a look but only time will tell if it remains the strong peer to peer lending powerhouse it once was.

I hope you found this Zopa review informative.


Click Here Sign up for Zopa and receive a £50 bonus when you invest £2000. (Sometimes Zopa’s lender demand become too high and the company closes to new investors. If this happens, check back frequently. Zopa pays me a small referral fee at no expense to you. When you sign up for an account through my website, it allows me to continue updating this Zopa review at no cost to you.)

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Disclaimers: I’m not paid to write this Zopa review, nor am I employed by any of the companies I write about. In most cases, I have invested or continue to invest my own money through the companies I write about. The sign-up links on this Zopa review and this website are referral links. When you sign up for an account through my website, I receive a referral fee directly from the companies, at no cost to you. Your support enables me to continue to operate the Financial Thing website. You can read more about my referral links here.

** This Zopa review is for information purposes only and should not be regarded as investment advice. Opinions expressed in this Zopa review are opinions based from my own personal experiences investing my own money. As with any financial investment, peer to peer lending involves risks, so never invest more than you can afford to lose. **

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Laurence
I'm the author of Financial Thing and a regular peer to peer lender who was begrudgingly forced to figure out his financial life. Now I have a passion for helping others figure out what took me years to learn.