Zopa P2P Lending Review – A Real Investor Experience (Updated July 2019)

By | 21st January 2019

Summary: Founded in 2005, Zopa was the first P2P lending platform to launch in the UK and the only one that has lived through a downturn, which should give investors some reassurance about the viability of the platform. However, a relatively recent change has seen its products change, and the previous accounts which were protected by a provision fund have moved to a non-protected one. With interest rates lower than their competitors, their key selling point is their track record.

Here is a table comparing Zopa with similar platforms of its type, which deal in unsecured personal loans:

PlatformLinkTarget Rate (%)My XIRR (%)Current (%)Live Rating

JULY 2019 UPDATE: Am on a roll with Zopa: three good months in a row now! Hopefully this trend continues.
JUNE 2019 UPDATE: Zopa have sold some of their bad loans. Whilst this provides a boost for investors in the short-term in my view it does not say much for their own collection skills.
MAY 2019 UPDATE: Had a most welcome trouble-free month. Remain unconvinced.
APRIL 2019 UPDATE: Second month in a row where losses exceeded interest payments.
MARCH 2019 UPDATE: Poor month with profits wiped out by losses. For this reason I don’t favour Zopa over its competitors.
FEBRUARY 2019 UPDATE: No change.
JANUARY 2019 UPDATE: Investment unchanged.

What is Zopa?

Zopa (standing for Zone of Possible Agreement) holds the distinction of being the first true peer-to-peer company. At a time of high interest rates, it offered less than perfect borrowers loans at lower rates than the banks, and investors the opportunity to earn better returns than savings accounts, with the rate dependent upon the riskiness of the borrower.

The model proved to be a success even during the financial crisis, with the product gaining popularity among both borrowers and lenders. The subsequent interest rate crash to almost zero rates also helped Zopa (and other P2P lenders) as investors were prepared to take some risks for a non-zero return.

Zopa pioneered the of aggregating lender funds and splitting them across all loans. In this way an investment is split across multiple loans on the loan book, which gives an element of safety in that a single default has a less pronounced effect.

Zopa’s intentions stretch beyond P2P: it has acquired a banking licence and intends to offer a digital challenger bank soon. Whether this offers any advantages for investors remains to be seen.

Here is a table of all Zopa features:

Advertised ReturnsUp to 5.2% (Plus)
Loan TypesPersonal
Loan SecurityNone
Minimum Investment£1,000
Cash DragSmall
Secondary Market?No
Provision Fund?No
Auto Invest?Yes
Available in ISA?Yes
FCA Authorised?Yes
Active on forum?No
Sign-up offers?Up to £200

What’s the Zopa sign-up offer and how does it work?

Currently there is up to £200 available for new sign-ups which works as follows:
Invest £2,000-£4,999 = £20 cashback
Invest £5,000-£9,999 = £50 cashback
Invest £10,000-£14,999 = £100 cashback
Invest £15,000-£19,999 = £150 cashback
Invest £20,000 = £200 cashback
(Other t&cs apply, and you can sign up here)

Zopa Operating Model

Zopa only offer one type of loan: unsecured personal loans. These are typically used by borrowers for a variety of purposes such as home improvements, car purchases or even debt consolidation. Loans are generally for smaller amounts up to £25,000 and up to 5 years. They amortise, so you will receive a portion of capital plus interest into your account every month.

In the past there was a greater deal of flexibility on how investors accepted risk: a grading system ranked borrowers by their credit risk and choosing to loan to a higher risk borrower generated higher returns. Nowadays Zopa has consolidated its products and there are only two: Zopa Plus and Zopa Core. There is not a great difference between the rates (at time of writing, Core projects 4.5% and Plus 5.2% after losses and fees).

The only other choice as to regarding investing is whether you want your interest repayments to sit in your cash account or to be automatically re-invested (in the same product where they came from). It would not be possible to choose what particular loans you would want your money invested into.

How are funds protected?

Zopa offer unsecured personal loans, and as such there is no underlying loan security. Unlike other platforms such as Ratesetter or Lending Works (who also offer the same type of loans) there is no discretionary provision fund to compensate against bad losses. There used to be one in the past, but this would only cover loans made when it was operating.

Instead Zopa state they provide protection of funds by superior loan selection and management as well as diversifying investments across many loans, which means that all investors share in the good times (as well as the bad). This approach works if defaults are contained to a low level and so far it appears that this is sufficient to not cause lenders any capital loss.

Pros of Zopa

There are many things to like about Zopa:

Long track record: It has been said a few times, but Zopa outdates all P2P platforms, giving it some insights on how to survive a financial crisis and reducing platform risk.
Hands-off experience: The simplicity of the product has made it one of the easiest to operate – if you have your money on auto-invest and not topping up the account there is no real need to check it as payments are automatically invested.
High liquidity: It is apparent that many borrowers use Zopa, who offer rates lower than others. This transfers into demand for money on the platform, transferring into less cash drag and quicker cash-outs.
Transparency: Zopa are very transparent about where your money has gone. You can download your personal loanbook, from which is possible to reconcile the figures on your dashboard.

Cons of Zopa

There are also a few things to dislike about Zopa:

Lower Interest Rates: Loan interest rates lag behind that of Ratesetter/Lending Works by some distance considering the loans are broadly similar. This is unsurprising in some ways because Zopa appear to offer lower interest rates to borrowers, but could also be indicative of a higher fee schedule being charged.
No Provision Fund: Zopa’s loans no longer carry any protection against loss, unlike others. Whilst no reliance should be put upon a Provision Fund, in the case of Ratesetter the funds are segregated, and demonstrably are used for the purpose of compensating lenders. It is therefore slightly irritating to have to see defaults within results, when you would not do with other platforms.
Small Premium for Plus: Considering there are more riskier loans in the Plus loans, the risk premium of 0.7% is too small for me and not sufficient compensation.
No choice on loan length: Unlike Ratesetter, there is no choice of which loan market length. Whilst a variety of loans lengths are used, there is no equivalent product like the rolling product, and early withdrawal costs a minimum of 1% plus interest rate differential. Zopa is not a place if you need instant access.

My Zopa Investment Strategy

I use Zopa mainly as diversification, as their ‘Plus’ rate isn’t quite up to the returns seen elsewhere, and even the Core rate is not as good as a rolling rate on Ratesetter (which admittedly, you have to queue for to get 3.5%+). I tend to favour the Core product and use auto-invest so that no checking is required. As long the investment period is greater than a year there should be a return here even if you did require the money back after this time.


Zopa’s track record speaks for itself: it has a long history of providing a decent product for both borrowers and investors. That said in recent times the investor product has slightly deteriorated in the form of the removal of the provision fund and reduced interest rates. Other platforms have improved on its returns, but Zopa is still a useful investment to have for diversification purposes.

Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).

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