Zopa and lend-to-save websites hit back over 'rising risk' claims
Furious lend-to-save websites have hit back at accusations of luring savers into a money-exchange trap, where they are taking on too much risk to boost the return on their nest egg.
Last week we reported that losses at Zopa, the largest of the websites that connect savers and borrowers directly, had crept up.
Dubbed peer-to-peer (P2P) or social lending by the industry, the lend-to-save concept allows savers to bypass banks and agree loans and interest rates directly with borrowers, drawing an interest rate return that usually beats savings accounts.
On lend-to-save sites, less credit-worthy borrowers pay higher interest to compensate for an increased likelihood of default or missed payments.
At Zopa, for every £1,000 a saver lends to a borrower, £8.80 is now going unpaid, up from £7.60 twelve months ago, representing a 0.88 per cent default rate.
Giles Andrews, chief executive of Zopa, said the quoted figures were taken out of context and claims Zopa's loss rate is far lower than any bank.
'As Zopa runs the safest personal loan book in the UK – safer than any bank by far, with a default rate of less than 1 per cent - the recent article was surprising,' he said.
Zopa's 0.88 per cent default rate – the amount of money being shaved off savers' returns – is well below the default rates lenders are told to expect, Andrews added.
On this, Zopa is very cautious. It gives expected bad debt figures to people lending based on borrowers' creditworthiness and tells people to take this into account when considering the rate at which they are willing to lend.
These expected figures typically come in far above the actual default rate. For example, the average assumed bad debt is a cautious 2.6 per cent - considerably higher than 0.88 per cent.
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Giles Andrews, chief executive of Zopa, said the quoted figures were taken out of context and claims Zopa's loss rate is far lower than any bank. 'As Zopa runs the safest personal loan book in the UK – safer than any bank by far, with a default rate of
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