Zopa Safeguard

[Ari]

I've searched old threads about Zopa, but something must have changed because they talk about risk of defaults etc whereas now Zopa seem to have a system in place to guarantee your investment and interest earned.

http://uk.zopa.com/lending/lend-money-safely

So if theory it looks like a guaranteed safe place to get 4.6% return.

As ever, if something looks to good to be true etc...

So what's the catch?

[ringram]

According to McKinsey's no catch.
P2P lenders have a 425bp advantage over legacy banks.
Ask the Cypriots how safe their banks were/are.

http://www.ft.com/cms/s/0/250c9d92-ee1c-11e2-a325-...

[Newc]

There's no catch in the sense of "it's a scam". It's an entirely legitimate business and return.

There is a bit of marketing going on though, because they focus on the headline annual rate. You won't get that rate overall, because your money isn't earning from day one - you are queued up with other lenders and your money goes out on loan over time. Same when you get a repayment - that money goes to the back of the queue to be re-lent out. Zopa also charge fees, so make sure you're looking at the net rate.

Your money is not guaranteed - they cover an amount of default through a small insurance levy, so your risk is that Zopa get their credit approvals wrong and all their borrowers default.

The Safeguard structure is different to how they originally set up. It allows them to do the default insurance fund, and it allows you as a private lender to offset your losses against profits for tax, which wasn't achievable in the original design.

[ringram]

Indeed, they have been going many years now though so in theory their models should be pretty good and assuming their insurance levy ties in with all that you should be fairly well covered. Moves them up the risk/reward scale anyway.

[Ari]

That's all very interesting, thanks chaps. Doesn't sound like there's much risk then, but doesn't sound like there is much extra reward either unless you put a lot in.