Published 8 Sep 2011
[cont'd] if you lend £500 or more your money will be spread across at least 50 borrowers. This business model has no doubt contributed to a bad debt figure of just 0.9% on a lending pot that has now hit £150 million.
The basic mechanics are you deposit money into your Zopa account which is then made available to borrowers. You can lend anything between £10 - £25,000, for terms of 3 or 5 years and decide on the level of risk you’re comfortable with by studying the Zopa market analysis which splits the demographic into A*, A, B, C and Young. The website has more detailed descriptions of each category. Zopa will then match your money to appropriate borrowers who have been sanctioned by an underwriter and you will have the benefit of a decent return on your investment.
Like with any investment it’s prudent to know the strength of the business in the middle and so checking out the financial clout of Zopa is probably a good move. Having said that, they are backed by some of the biggest names in venture funding and have an executive and non-executive board of some pedigree.
This is a great concept and one that could cause a few problems for the mainstream banks who have seen their reputations nose-dive in recent years. The funny thing about it though is that Zopa, and other similar businesses in the Peer to Peer lending market, are actually doing what banks used...