Ratesetter Vs Zopa: Which Is Best For Your Money?

Peer-to-Peer lending (P2P) has really taken off in recent years. Hardly surprising, given the benefits for lenders and borrowers alike.

Investors enjoy returns that are several percentage points above average banking rates and borrowers are able to grab a quick loan with interest rates comparative to institutional lender rates without complicated application procedures.

Among the websites offering P2P lending, two stand out from the crowd.

Zopa was first to market in 2005, and was, without doubt, the pioneer when it came to P2P lending, but since then others have come along to challenge their dominance in the market.

One, in particular, Ratesetter, is catching up fast. In this article, we’ll examine which is the best vehicle for your investment.


Being the first to offer P2P loans, Zopa passed the £2 billion mark in lendings earlier this year.

After fees and bad debts (with an default rate of 0.7%), the rate of return for lenders to date in 2017 is 5.8% – attractive when you consider an average fixed rate savings account would only gross about half of that.

Significantly, Zopa only accepts low risk borrowers in the A+ to C category and this has been one of the reasons behind the company’s early success.

The firm operates very stringent risk controls, screening both credit history and ability to repay. In fact, more than 75% of borrowers are not approved.

However, along the way, Zopa’s business model has changed. Whereas, previously, Zopa’s allowed lenders to choose level of risk exposure, and, therefore, the rate of return, this is no longer the case.

Critics might say by doing so, Zopa lost their USP. Recently, the company also began a ‘safeguard fund’ to cover losses for investors – replicating Ratesetter’s ‘provision fund’.


Ratesetter mightn’t have come into the marketplace until 2010 yet the company surpassed £2 billion in total lendings to date this year.

The typical borrowing customers tends to be A and A+ rated. Ratesetter has always operated a ‘provision fund’ (paid for by borrowers via an additional rate charge) to cover bad debts should they occur – something Zopa now also does.

This P2P lender offers a very different commission structure that that of Zopa in that lenders hand over 10% of the interest they receive. Average return for lenders is around 5.5% for three year loans.

Interestingly, Ratesetter offers a rolling month-long contract for those that don’t want tie up their money, but this does come at a much lower rate of return.

Ratesetter: New Investor Bonus

£50 bonus when you invest £500+

Ratesetter Vs Zopa: Best of both worlds

As we can see, while Zopa started out offering more flexibility, certainly in terms of risk and return for investors. However, in recent years, the lines of differentiation have become increasingly blurred.

The rates of return are converging, as are borrowing and lending strategies, making it very difficult to choose which is the better investment.

Of course, there’s nothing to stop you investing in both and that could be beneficial when it comes to diversifying your portfolio, especially now as both have been approved by the FCA to offer IFISAs for tax-efficient investing.

Zopa’s ISA is already on the market with a target rate of 3.9% for the lower risk fund and 6.1% for the higher risk fund.

However, unless you’re an existing Zopa investor, there’s a waiting list.

Ratesetter’s website claims that their IFISA is ‘coming soon’.

Just remember that neither are protected by the Financial Services Compensation Scheme should things go wrong for either company down the line.

Kieran Ball

Award-winning copywriter, author, blogger and financial journalist, Kieran’s work has appeared in every conceivable medium. Technology and finance are just two of his passions. He has published a travel novel, worked as a music journalist and written advertising campaigns for some of the biggest companies in the world.