The Zopa website is nice and easy to use, and there's a great support forum to get stuck.

The Zopa website has a good control panel so you can see the status of your individual loans, including how much has been repaid, the interest rate and how long is left on the term of the loan.

So far I've been lucky and I've not had a loan go bad. I've had several loans repaid early. I do have a couple of loans in arrears, so I hope the borrower will eventually be able to repay the loan.


There are basically three problems with lending money via the Zopa money lender website.

The first problem with Zopa is that Zopa is not legally a bank. While Zopa does comply with UK financial regulations, if Zopa goes bust then your money is at risk. In theory should Zopa go bust then the money you have lent out will probably be recovered by a company that decides to buy Zopa's assets and loan book. It's not very likely that the borrowers will never need to pay back their loans! Nethertheless it is a risk when you use Zopa. One good way to minimise risk is to not have too much unlent money in your Zopa account. The other important consideration is to not lend out money you can't afford to lose. Don't forget that if money is lent out as a loan then you can't get it back until the term of the loan has finished or the borrower repays the loan early.

The second problem with Zopa is that your capital is at risk from borrowers borrowing your money and being unable to pay it back. While Zopa has rigorous credit checking and reference facilities, the fact is that some loans do go bad or get in arrears, so your returns might be lower than you think. There is also a risk of a surge in bad loans should the economy worsen.

Thirdly, it's a shame but lending money on Zopa is not that tax efficient. You are taxed on the interest you receive from loans made through Zopa. For this reason I am unsure as to why a higher rate tax payer would lend money through Zopa. While basic rate taxpayers pay much less tax on their Zopa loan interest repayments received, the problem for basic tax payers is that they have to declare this income on an Inland Revenue self assessment form so the appropriate tax can be paid on the interest. This is a lot of hassle if you don't already need to submit a tax return. It's a shame there isn't an Individual Savings Account (ISA) wrapper around Zopa, which would make it tax-free as well as being easier to declare to the authorities.

Full Review

Got some spare cash? Making tiny amounts of interest from your money held in a bank or building society account? One way of making great rates of interest is the lending website Zopa.

Zopa is a bit like an online bank. You deposit money from your checking account and you can withdraw it again. Money you hold within Zopa is lent out to borrowers to finance car loans, home improvements, loan consolidation and other loans. The big difference with Zopa compared to standard banks is that via the Zopa website you can control how your money you've deposited is lent out. You can control:

How long your money is lent out for (36 or 60 months).

What interest rate you want to lend your money out at (anything from 5-20%).

What risk you want to take with your money. Borrowers are credit scored, so a higher risk borrower will pay more money in interest on the loan, but they have a statistically higher level of defaulting on that loan.

If this all sounds too good to be true, well it is. In fact you'll be unlikely to lend out your money at 20%. In fact loans are made on the basis of a "Zone of Possible Agreement" - Zopa (hence the website name!). The Zopa specifies the range of interest rates that a borrower and lender will both find mutually acceptable. If you want to lend out your money more quickly, you simply reduce the interest rate to a level that is lower than what the majority of other lenders are offering to borrow their money at.

By the way, Zopa has an American, a UK based and a Japanese lending website. I've only used the UK based one, so this article may not apply to the other Zopa websites in countries where the financial regulations differ.

I've been with Zopa for a year now, and I'm pretty pleased with the amount of interest I've earnt from it compared to the derisory interest rates I've been getting from my bank savings accounts.

In Closing

Peer to Peer lending is catching on! There's another peer to peer lending site. The site is called Yes-Secure. The site has similar facilities to Zopa, but with slightly lower lending fees.

As with Zopa, any income made through Yes-Secure needs to be noted on your self assessment tax return.

As with Zopa, your money is not guaranteed by the government so only invest money you can afford to lose.

If you're looking for a loan through Zopa, then it's worth checking Yes-Secure as well, as they might have a slightly lower interest rate.