[Closed] Does anyone use Zopa?

A colleague was telling me he has a grand in there for lending at the moment and getting good returns, better than any bank. Not checked out the detail myself though, but he said they slice up your cash and divvy it up among borrowers so its a bit like the sub-prime crisis waiting to happen on a smaller scale potentially.

edit, just had a quick look and I may stick a grand in it as he said he was getting 8% return.

used it to borrow, over paid every month with no penalty would use again.

I remember reading about them when they started - they've since leant £250m!!! That's a lot of money. Looks like a good piece of a balanced portfolio of investments.

I have a very small amount of money lent out through them. It certainly has some attractions but there are some potential drawbacks to be aware of:

- if the debtor doesn't pay back the money you loose it. The idea is to spread your exposure widely so the impact is reduced. I've been doing it about a year and so far haven't lost anything, but other people have.

- you can't write off any losses against tax. So if you are paying tax on it you loose out on losses. The really serious people seem to be focussing on the lowest risk loans.

- at the lowest risk end of the market the "competition" between lenders is really high which drives down the return you can get. If you put in a big chunk of cash and want it lent out quickly you will end up getting poorer rates than someone who trickles in cash (or is willing for it to sit in your holding account not earning anything).

- the "headline numbers" aren't AER, first you need to take of Zopa's 1% free, and any write offs/losses. Then it will only be AER if you set it up to automatically relend all your returns (capital+interest).

- at the poorest end of the market you [i]may[/i] be able to make better money elsewhere. See the Zopa forums for more details...

You may find better rates on fundingcircle.com (same idea for business borrowing) but I've not actually lent there because I haven't found any of the businesses I looked at really compelling (I "pop in" every 3 months or so - so I may be missing some).

I'm a lender, invested £200 about a year ago and re-invest all the repayments. Currently looking at a return of about 8% after all fees and bad debts (only had one so far). I don't spend any time on it, so I'm sure I could make more if I did.
The thing to watch for is how long it takes to re-lend money, that's when it's sitting not doing anything.
I imagine it could be fun continually adjust interest rates to maximise return, and you can do it with a small sum, so any losses aren't huge.