As a former worker in the banking sector and business-studies lecturer, Alison MacDonald was comfortable taking her first steps in peer-to-peer lending four years ago.
“I heard about Zopa on a Radio 4 money programme: one of the reporters was explaining how it worked, and he said he had decided to lend £500 initially,” says Alison, 57. “So I decided to dip my toe in and do the same.”
Understanding the risks and returns
Given her financial expertise, Alison fully understood the risks of P2P lending but took the view that the returns on offer were more than worth it – not to mention that the whole system appeared to be considerably fairer to both lenders and borrowers. “I’d worked in banking for many years, and the spreads were much bigger: banks would lend to borrowers at 10%, say, but pay savers just 2%,” she explains.
Building a holiday fund
Since making her initial £500 loans, Alison, from Worcester Park in south-west London, has added steadily to her Zopa account. “It’s my holiday fund really,” she says.
Alison is also looking forward to Zopa’s launch of its Innovative Finance ISA (IFISA) sometime later this year. “I’ve got a couple of fixed-rate cash ISAs which have matured recently, but the rate I’ll get from my bank to reinvest them is around 1%. I want to keep the money inside the ISA wrapper, so I’ll transfer them when Zopa’s ISA is available.”
Zopa Classic
This will take her current Zopa holdings of £2,200 to more than £11,000. However, she says she is happy to stick with the medium-risk Zopa Classic lending option rather than the higher-risk, higher-return Zopa Plus product that the company introduced earlier this year.
Alison says she has recommended P2P lending to some of her friends, and her husband has just made his first loans as well. “When the banks are offering 0.5% on most savings accounts, there is just no point putting your money there.”
How P2P fits into Alison’s finances
She has a broad spread of investments, with some funds in the stock market as well as cash deposit accounts for emergency use. Given the high level of share-price volatility over the past 12 months or so, Alison is well used to dealing with risk – but in her years as a Zopa lender, she has experienced “just a couple” of bad debts and late payments. The Zopa Safeguard fund, which is designed to reduce the impact of any losses, provides Alison with more peace of mind.
Another attraction of Zopa is the fact that its service – matching lenders and borrowers – is very simple, Alison says. “I don’t think I’d want them to get too fancy, for example by offering mortgages.”
Find out more about lending with Zopa.