I have been using Zopa to lend out for about the past two years. I heard about it on Radio 4 and thought it was an interesting concept. Essentially, instead of investing your money in a savings account, or borrowing money from a bank, it is essentially a free trade market for non-institutional investors to lend money to your average person.
From a lending perspective, you do run the risk of bad debt, but you, just like the banks, can choose where to take your pain by choosing what sort of credit rating you are willing to lend to and at what rate. While I haven’t always had all my money on offer, I am getting between 6-8% per annum, which is better than a lot of investments these days and sure beats the socks off whatever a bank will be willing to give you.
From a borrowers perspective, you can get quite below market rates. I noticed the rates have gone done a bit since I started, but that is just the nature of a competitive market, where there are more lenders than borrowers who have such a great credit rating. Also, even though we are in generally bad economic climates, I have only lost about 0.8% to bad debt.
So wether you are a borrower or lender, you might want to take a look and cut-out the banks, which isn’t a half bad thing.