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Zopa launches safeguard
Zopa has launched a new feature to protect lenders from bad debt called "safeguard". Where a borrower is unable to repay their loan, the safeguard will step in. It is our understanding this will operate similar to the provision fund operated by RateSetter.
Safeguard is advantageous for lenders as it will give them more certainty of what their return will be. This will also reduce the tax that lenders would otherwise have to pay (as tax is paid before bad debt), but with safeguard Zopa will take over the loan and repay the lender any outstanding funds.
RateSetter's provision fund has been hugely popular, and it is expected that safeguard will be equally popular. The finer details of how the safeguard will be funded are still to be determined, and it should be stated that this is not a guarantee, but a further layer of protection for lenders.
Here is the full statement from Zopa:
Zopa today announced its new Safeguard tool to reward British savers, frustrated by low savings rates, with a better financial deal. UK savers will benefit from the new Zopa Safeguard which enables them to simply and safely earn market-leading returns of 5%.
Zopa hit a record £300m lent to UK consumers through its peer-to-peer lending platform and the total is growing daily. From the loans that have been approved since Zopa launched in May 2005, 45% of borrowers have been able to purchase a new car, 21% have been able to undertake home improvements and even 2% can cover their wedding expenses.
Zopa savers cut out banks and building societies and earn 5% on their savings by lending their money directly to other responsible people. Despite Zopa’s default rate being extremely low (0.8% on all money lent since launch), the Zopa Safeguard is now available to make up all the money owed from a borrower, including the interest, in the rare instance that they are unable to pay back their loan.
By rewarding people who are good with money, Zopa provides leading market rates for savers and borrowers. The new Zopa Safeguard tool will reassure savers that their money is protected and earning great returns.
Giles Andrews, CEO of Zopa said, “Zopa has lent over £300 million directly to UK consumers and has been rewarding customers that are good with their money by delivering great rates for the past eight years. With the launch of the Zopa Safeguard we are going even further to ensure savers get secure and market leading rates of over 5%. We have already seen a 200% uplift in savers signing up to Zopa in 2013 and with the financial sector experiencing a challenging time, this signals an exciting opportunity for us and future for the peer-to-peer industry.”
As the market leader in this sector, Zopa is spearheading the consumer choice that bypasses traditional financial institutions and provides a higher reward for being good with money. Adding Safeguard enables Zopa to further reward its customers and make the activity of lending-to-save more appealing and secure.