Back to How Zopa minimises risk
Introducing Zopa’s risk markets
Zopa has more than 11 years of experience in managing risk in the UK personal loans market.
We have a dedicated team of risk analysts who interrogate borrower performance against expectations and regularly tweak our models. They are obsessed about measuring risk and pricing it appropriately so that we generate the target yield for our lenders.
At Zopa, borrowers must meet a number of minimum criteria in order to be eligible for a loan:
- Be at least 20 years old
- Have credit history we can see
- A good track record of repaying debt
- Be a current UK resident
- Have 3 years of address history in the UK
- Have an income (at least £12,000 per year, this could be a salary or pension)
- Be able to afford the loan (based on an assessment of their current financial commitments vs. income)
On top of these minimum criteria, Zopa also classifies borrowers into different risk markets depending on the associated level of risk.
Our A* and A market borrowers repay their debts on time and have never missed a payment. They have a well-established credit history and their debt-to-income ratio is low.
Our D and E market borrowers have a similar debt-to-income ratio as the B and C market, with their income typically around the UK average. D and E market borrowers may also be people with limited credit history.
* These numbers are based on a fully diversified portfolio of all Zopa loans, and so should not be compared at the micro-loan level
How do risk markets and lending products match up?
Zopa’s model of splitting lenders’ money into microloans (between £10 and 1% of your total investment) means that across all our products your money is lent to a range of borrowers in different risk markets to diversify your money and reduce the risk of potential losses.
Lenders selecting Zopa Access or Classic lend to a range of A*–C borrowers and will have Safeguard cover. Lenders that choose Zopa Plus do not have Safeguard cover and will see around 30% of their money lent out to D and E markets, which carry a higher level of risk in exchange for higher projected returns, even after expected defaults, with the rest lent to A*–C borrowers.
Lending to institutions
Whilst individuals account for approximately 62% of funds in Zopa’s loan book, we also have a variety of financial institutions that lend money through Zopa.
As well as retail customers, Zopa also lends on behalf of some carefully selected institutions, from hedge funds to banks.
We treat institutions just like individual lenders, there's no cherry picking of loans and they get the same mix of loans as we offer to individuals.
Both our retail customers and institutional customers lend to A*–E rated borrowers. Whilst D and E markets are only open to Zopa Plus lenders, the overall share of D and E rated loans which are available to our retail lenders is in line with their share of total disbursals.
If there is insufficient demand for Zopa Plus from our retail lenders then Institutions will take the excess D and E market loans.