Peer to peer lending is still a relatively underutilised borrowing and investing alternative in New Zealand.
As an investor, it's only natural you will have concerns about the safety of your money. We encourage you to learn as much as you can about peer to peer lending and its associated risks.
We also recommend you take independent financial advice before you make any major financial decision, including investing via our marketplace.
We have put together these FAQS to help you better understand the arrangement.
Who can register as an investor?
All individuals, companies and/or trusts that have been identity verified and who hold a New Zealand bank account, can invest in this alternate asset class and fund borrowers through our platform.
How do I invest through Zagga?
- Join our marketplace on an obligation-free basis
- Register with us as an investor
- Follow the process to complete your investor profile
- Once registered, we will send you electronic or mobile alerts as soon as there is a loan that matches your investment requirements
- After receiving the notification, you will be granted access to review the loan documentation
- Following your review, you may accept the investment to fund the full or a fraction of the loan amount, or opt-out of participating in the loan
Please note that all registered investors must have a New Zealand bank account and satisfy an identity check. This is to comply with New Zealand's Anti-Money Laundering and Counter Financing Terrorism (AML - CFT) legislation.
What is the minimum investment?
The minimum investment in each loan is $1,000.
What is the maximum I can invest?
There is no maximum to the amount you can lend. By fractionalising all our investors' funds, you can fully fund a loan, or to participate across several loans to enable you to diversify your investments. Zagga's loans are up to a maximum of $2,000,000.
What are the non-disclosure provisions?
To enable investors to make informed decisions about the risk profile of a loan, we will provide matched investors with relevant information about a borrower's loan application. Prior to viewing this, investors must agree to an Investor Agreement which contains non-disclosure provisions. Under this Agreement, investors must not disclose information obtained through Zagga about any loan or borrower under any circumstances, to any third party.
The Agreement is completed by the investor as part of their registration process. No investor will be approved unless they have executed this agreement. We will strictly enforce this agreement.
We will not disclose the names of borrowers to any investor without the prior express consent of all borrowers.
How much will I know about the borrowers and their loan application?
Once we have matched and alerted you to a loan that meets your specified criteria, you will be able to log in to the document portal to view relevant loan information and supporting documents.
The borrowers' names will only be released with full consent from the borrowers. Their personal details such as residential address, telephone numbers, email address and place of work, are never released to investors.
Registered investors are bound by non-disclosure provisions, to not disclose any information about borrowers and their loans. Zagga takes this requirement very seriously and will take steps against any investor who breaches this. All investor activity on the portal is tracked and audit-trailed.
Contact details or any information that can identify borrowers or investors must not be asked for or exchanged. Parties must not attempt to contact each other or transact outside the marketplace.
Can I ask borrowers questions about their loan application?
To assist with investment decisions, matched investors can ask the borrowers questions relevant to their loan via the document portal on our website. We will forward the question to the borrower and convey the answer back to all matched investors via the website.
A borrower does not have to answer these, however, their loan is more likely to be funded if they do. Borrowers who are honest and open will be more attractive to investors than those who do not respond to questions. Questions asked to the borrowers and their responses, will be available to all investors to whom the loan has been matched, but not to anyone else.
Please note, when you ask a question it will not be displayed until the borrower answers the question. However, it will be recorded on the file as an unanswered question.
You must not ask for, or provide, any contact details or information that could be used to identify you or the borrower. Your account may be terminated if you do so. If you have concerns about any of the above, please contact us immediately on 0800 286 286.
What fees do I pay?
Investors are charged a Loan Management Fee of between 0.9% to 1.95% per annum of their fractional share of the outstanding principal balance on each loan. This fee is charged by Zagga for managing borrowers' repayments and administering accounts on behalf of the investors.
The Loan Management Fee is deducted monthly from borrower repayments. Please refer to our interest rates and fees.
Please note, we will be required to deduct non-resident withholding tax if you are not a New Zealand resident for tax purposes.
In some circumstances, including on redemption of a loan interest when an investor's capital has been fully or partly repaid, the Trustee may deduct other fees and costs from amounts otherwise payable to the investor in respect of their loan interest. For full details, please refer to the Declaration of Trust.
What returns will I earn?
Your investor returns will be paid per the terms of the investment. You will be entitled to receive monthly distributions in the form of interest, or interest and principal, depending on the loan type you have opted into. This will be paid to you after we have deducted an ongoing monthly Loan Management Fee which is between 0.9 - 1.95% of your fractional share of the annual outstanding loan balance, and subject to the borrower not being in default or hardship relief.
Interest rates are set individually for each loan and are based on the Zagga Credit Assessment Score. This is calculated on a borrower's credit history, size of loan against value of the security property (LVR), quality of the security and other loan application information.
You can choose the loans which you believe suit your specific risk and return requirements. Generally, the riskier the loan, the higher the return. To mitigate the risk for our investors, all loans approved through us:
- are typically secured by a registered mortgage over property
- have undergone a thorough credit assessment
- are to creditworthy borrowers who are not bankrupt or insolvent.
Please visit Investment rates and fees for more information.
Can I manage a loan myself?
Yes, but you must be the sole funder of the loan. If this is the case let us know and we will arrange for you to take over management of the loan. Investors who manage their own loans do not pay a management fee to Zagga.
However, if you wish to use our loan management system and reporting, we will charge you a fee to be agreed based on the services you use.
Is there a minimum investment term?
Investments are for the duration of the loan or loans that you have opted into. Therefore, if you agree to fund a two-year loan, your money will be committed to the loan for the full duration, unless:
- the loan is repaid early
- the borrower defaults
You will be entitled to receive monthly repayments from borrowers for the term of the loan proportionate to the percentage of the loan you have invested in.
What is the duration of a loan?
Loan terms differ between loan types and can range from six months to five years. The loan term is disclosed in the loan application documents.
If you prefer certain loan terms, you may elect this at the time of completing your investor profile.
What are the risks?
All investments carry some degree of risk, and generally, higher rates of return are associated with higher risk of loss of capital invested or investment returns.
Before you make an investment decision it is important for you to identify your investment objectives and the level of risk that you are prepared to accept. Zagga provides a tool to assist you in determining your investment objectives and risk tolerance, however Zagga does not provide you with personal advice that any investment you make will be suitable for your personal circumstances.
When Zagga matches a loan to you, it is matched based on your specified preferences, and does not make any representation or guarantee that the investment is suitable for you or that it will meet your investment objectives. Therefore, we recommend you seek independent financial advice before making a decision to invest.
The significant risks in investing funds to be advanced under a loan include:
The risk of loss arising from the failure of a borrower to repay some or all of the money they owe.
If a borrower defaults, there may be shortfalls where the sale proceeds of the security property are not sufficient to recover in full, the invested funds and costs incurred by the Trustee in enforcing or recovering the repayment of principal and interest under the relevant loan.
When a borrower defaults, the costs incurred by the Trustee, together with any loss of principal and/or interest payments due under the loan arising out of the borrower's default, will be borne by the investors who have a beneficial interest in that loan.
On winding up of the Trust
After trust property has been realised and costs and other expenses have been deducted, if there is a negative dollar amount (shortfall) in the calculation of the entitlement of an investor to a distribution, the Trustee may ask the investor to pay such shortfall if the Trustee in its discretion, believes to do so is in the best interests of all of the Trust's investors, requiring the investor to have contributed more than the original principal invested.
Term of investment and liquidity risk
Subject to the terms of the loan, once you have agreed to invest funds in respect of a particular loan, you are committed to the investment for the full duration of the loan term, which can range from six months to five years. Therefore, once exposed to a loan, your investment is essentially illiquid in nature. You may be unable to convert to cash, the portion of the principal component of a loan you agreed to fund. You must take this into consideration when deciding on what loan types will be suitable for you in light of your overall investment portfolio and needs.
We acknowledge the risks of investing to fund loans and have put in place many checks and controls to mitigate your exposure to risk:
- all applicants undergo rigorous screening including a full identity check, credit history check to determine their expected ability to service debt, and risk-assessed by our team of experienced credit professionals
- loans are typically secured by a registered mortgage over residential property, commercial property and/or land, in addition to any other security that might be required from a borrower as part of the loan approval terms
- investors' money and borrowers' repayments are held separately from Zagga's own assets, in a bank account in the name of the Magna Trust Company Limited. Loan funds are only released to the borrower when the loan is finalised and settled by our solicitors
- we monitor all loans and borrower repayments closely and will take immediate action if a borrower fails to meet their repayment obligations.
Despite these measures, if a loan default occurs, there is a risk that an investor with a beneficial interest in the loan:
- may not receive all of their monthly payments
- could lose a portion or all of the principal amount they have invested to fund that particular loan.
Therefore, you need to be comfortable with the level of risk you are exposed to when choosing the risk level of the loans you are willing to fund, the terms of the loan, and investing in this manner generally.
It is important to note that while you, as an investor, have a beneficial interest in the loans that you have invested in, only Zagga's trustee (Magna Trust Company Limited) has the discretion to exercise a right in respect of loans that form part of the trust property. The Trustee may consult with investors exposed to a loan about how the Trustee should exercise the rights attached to that loan, including rights to enforce, compromise or waive repayment of the loan.
You should be aware that Zagga accepts no risk whatsoever, nor gives any undertakings regarding the prospects of any loan or that it is a suitable investment for you. Zagga makes every effort to gather all relevant information, applies generally accepted credit principles in assessing the loan, and uses a well-defined matrix to determine a Credit Assessment Score. You must review all available documentation, satisfy yourself as to the risks involved with investing to fund a loan, and understand that you will bear any losses in proportion to your fractional share of each loan in which you are invested.
What are my tax responsibilities?
As an investor, you must declare your earnings as taxable income and pay your tax accordingly. Zagga is obliged to deduct resident withholding tax (RWT) or non-resident withholding tax (NRWT) at the rate you selected during registration. If you are exempt from RWT, Zagga will require you to upload your tax exemption certificate. If you are a US resident for tax purposes, you must advise Zagga and supply your TIN number to ensure FATCA compliance.
Are loans covered by insurance?
We do not take out insurance to cover the loans. You must also be aware that there is no government protection to compensate the investor for loss in the event of a borrower default.
Please refer to FAQs – Invest/ What are the risks? for more information on the possible risks associated with investing through marketplace lending.
How are credit scores assessed?
Once a borrower submits a loan application, we will conduct a thorough assessment of their financial position. This includes an examination of:
- their financial situation
- credit history to determine their expected ability to make monthly repayments (serviceability)
- any prior defaults or insolvencies (credit history)
- suitability of credit product (requirements and objectives).
If a borrower's loan application is approved, we will assign a credit score that reflects their credit risk, based on the Zagga Credit Assessment Score, and will assign the applicable interest rate to the loan.
We do not accept applications from borrowers with past insolvencies or bankruptcies and reserve the right to decline any loan application at our discretion.
What is fractionalisation?
A fractionalised loan is divided into multiple, smaller amounts enabling investors to spread their exposure to risk by diversifying across a variety of loan and borrower types.
Zagga fractionalises loans into a minimum investment of $1,000 in any one loan. An investor may choose to do this across any number of loans available. Investors may also choose to lend between $1,000 and the full amount. For example, for a residential property loan of $400,000, an investor may lend the full amount, or in multiples of $1,000 or simply just $1,000. So this loan is fractionalised i.e. it is broken down into 400 multiples of $1000.
When an investor searches a loan on Zagga they can view what percentage of the loan has been funded to date. Only when the loan is fullly funded will the investor be required to forward funds to cover their commitment. By spreading their funds over a number of loans, investors reduce the risk of funding an individual loan themselves. While the risk of loan defaults is greatly reduced in the secured lending market they will occur on occasion and fractionalisation is a tool that can reduce an investors exposure to one loan.
Fractionalisation allows multiple investors to take part in a loan, each with their own fractionalised participation.
How do I transfer money to Zagga?
Once you have opted into funding a loan, and it has been fulfilled, you will be required to transfer the money within three business days. You will be emailed instructions regarding the transfer and can also find instructions in your online Zagga account.
What happens if a borrower is late or defaults on their repayments?
We have a proactive and rigorous collections process with dedicated specialist staff who actively pursue arrears on behalf of investors.
If a repayment is late, we will contact the borrower immediately to pursue the overdue amount. Default interest will be charged on overdue loan repayments. This, along with any default or legal fees, will be capitalised to the borrower's account and become payable as part of their monthly repayments.
If repayments remain unpaid after 30 days, or if a borrower consistently fails to make repayments on their loan, their account will be referred to our debt recovery team who will take the action necessary to recover the debt, including, if necessary, the sale of the security property.
What happens if I die?
If an investor passes away, the ownership of their account will be transferred to their estate. We will work with the executor of the estate to ensure that ownership of the funds will be transferred as per the terms of the will.
What happens if the borrower dies?
If a borrower passes away, we would work with the executor of the borrower's estate which would assume responsibility for the loan.
How safe is my money?
As with any investment there are risks, including the borrower not repaying what they owe. Zagga has the following steps to reduce risk:
All borrowers are identity checked, credit checked and risk assessed by our team of experienced credit professionals. All loans are secured over assets, typically first mortgages. Investors’ monies do not form part of Zagga’s assets. When a loan is fully funded investors are asked to pay their funds into a separate trust account. Only when the loan is finalised and settled by Zagga’s solicitors will the monies be forwarded to the borrower. In the unlikely event that Zagga goes into liquidation or ceases to hold a peer to peer licence, a third party will oversee the completion of pre-existing loans in accordance with the requirements of the Financial Markets Authority (FMA).
Can I withdraw from my loan?
A transfer to another Zagga investor may be permitted in limited circumstances as set out in the Trust Deed and in the Trustee's sole discretion, although at this point in time, Zagga does not have a secondary market for the sale interests in loans.
Can I sell my loan?
No, you cannot.
Does Zagga pay interest on funds held by the trustee?
There is no interest payable on funds held by the trustee.
How does the trust account work?
The trustee, Magna Company Trust Ltd, holds a trust account with a NZ registered trading bank. This account is used to handle all monies coming in for loan settlements and from borrowers' regular repayments. When loan monies are received from investors they are held in the trust account until Zagga's solicitors approve the release of the funds to the borrowers. Funds are only released when all conditions have been satisfied and the relevant securities are in place.
Do investors earn the default interest charged on overdue loan repayments?
Yes, borrowers will be charged interest on unpaid amounts and this will be added to the amount receivable.
Can I change the terms of my loan?
No, once your loan is settled and active you cannot change its terms.
How does lending via a trustee work?
Zagga does not touch investors' money. Our independent trustee, Magna Trust Company Ltd, holds loans as bare trustee for investors. Each investor investing in a loan has a beneficial interest in that loan and in the underlying loan contract, in proportion to the amount that they have invested. All monies are paid into the trust account held by Magna Trust Company Ltd.
What happens if Zagga goes into liquidation?
Zagga is required by the Financial Markets Authority to have a plan in place in the unlikely event of Zagga going into liquidation. In this scenario a third party would be appointed to oversee the administration of all existing loans.
Investors' funds DO NOT pass through Zagga's bank account, and are not at risk should Zagga go into liquidation. Zagga has a comprehensive audit schedule and processes approved by the Financial Markets Authority.
How do I search loans?
To get started click on the search loans button. You can ‘quick search’ by simply dragging a slider across a risk return scale or by using a number of filters such as location and length of loan.