Zopa is the UK’s first peer-to-peer lending service.

It offers low-interest loans to businesses, and higher interest yields than savers might expect from, say, a typical savings account.

They also offer an ISA version of each investment option – allowing you to earn tax-free interest on your peer-to-peer investments up to your annual tax-free allowance (£20,000 for 2018/19).

To reduce the risks involved (yes, there are low risks), such as people not paying their loans for a number of reasons: so-called ‘bad debts’—it happens—Zopa operates a very effective risk management technique.

They split the amount you invest into £10 chunks, and divide them among many different loans, reducing your exposure to any one company and drastically lowering the risks attached.

Suppose a company wants to borrow £10,000. Rather than piling all the risk on one lender – if they defaulted on their loan, the lender would lose the full £10,000, for example – they borrow £10 from 1,000 different lenders. This way, if they cannot repay, each investor stands to lose only £10.

There is a minimum lending amount of £1,000, but no upper limit on the amount you can invest.

The borrowing term is between 3 and 5 years, so you shouldn’t invest money you expect to need in the short-term. That said, should an emergency arise, you can sell all your loan parts to other lenders at a 1% fee.

I’ve been using Zopa for the last 5 years.

First using the ‘Classic’ lending model, then switching to ‘Plus’ when they implemented the change, I haven’t experienced any problems with the service.

I’ve earned approximately 5% annual interest through Zopa, and so highly recommend it to investors looking for great ways to earn passive income online.