Back to Zopa risk management
Introducing Zopa’s risk markets
Zopa has more than 12 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 investors.
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
- Have 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 investment products match up?
Zopa’s model of splitting investors’ 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.
Investors selecting Zopa Access or Classic invest in a range of A*–C loans and will have Safeguard cover. Investors 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.
Investing with institutions
Whilst individuals account for approximately 62% of funds in Zopa’s loan book, we also have a variety of financial institutions that invest money through Zopa.
As well as retail customers, Zopa also invests on behalf of some carefully selected institutions.
We treat institutions just like individual investors, 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 invest in A*–E rated loans. Whilst D and E markets are only open to Zopa Plus investors, the overall share of D and E rated loans which are available to our retail investors is in line with their share of total disbursals.
If there is insufficient demand for Zopa Plus from our retail investors then Institutions will take the excess D and E market loans.