Peer to Peer Lending ZOPA: A Bank Loan without the Bank?

Banks have had a rough press recently, what with the Libor scandal, the NatWest fiasco and now with the news that hundreds of Nationwide customers have had payments taken twice from their accounts, can it get any worse? Possibly as Lloyds state they are setting aside a further £700 million for future PPI claims and Barclays face possible criminal charges, no wonder people are looking to ethical banking and other ways of securing their money and indeed, finding alternative methods to borrow money. If you have not heard of ‘peer to peer’ lending, I suspect you may do in the next few months. Peer to peer lending is exactly what you would deduce it means; it is when a group of people, not associated with banking, pool their resources by ‘lending’ a set amount so that others can borrow it. What is the point you may ask? Well, when you cut out the greedy banking middlemen, you can afford to give the lenders a high return for their money, and also lend at a reasonable interest rate, so both parties are happy.

One such peer to peer group is Zopa (Zone of Possible Agreement), who are currently lending over £1 million each week and were founded by the same management team that helped to found the internet bank Egg. Zopa has now got over 500,000 members, and has funded over £100 million of borrowing applications, with £48 million loaned in the last 12 months alone. So how does Zopa actually work? If you want to borrow money, you create an account and if accepted for a loan, Zopa will then match you with hundreds of lenders who each lend £10 or more. As you repay your loan, each lender gets their money and interest back. Zopa charge an adminsitrative fee for the matching service of around £130 depending on the size of the loan.

Good points are:

Excellent Rates. The rates on Zopa fluctuate depending on the amount of money available, but they are often market leading.
Liquidity. Zopa is not cutting their lending based on the credit crunch. In fact Zopa has been breaking records for the volume of loans they are processing! Lenders are deciding that investing money in individuals is safer than leaving in banks. This means that Zopa both has a lot of money to lend out, and that the interest rates are low.
Flexibility. At Zopa you can choose your repayment day, and you can change it at any time if it becomes inconvenient. You are also able to make full or partial repayments at any time with no sneaky bank fees.
Cut out the banks. Your Zopa loan is funded entirely by individuals rather than faceless corporations. When you accept a loan from Zopa you will see your lender’s usernames. You can also ask questions and interact with many of them on the Zopa discussion forums.

Bad points?:

Bad Credit rating? Need not apply. Zopa only accept those with an excellent credit history so if you have a record of CCJ’s, have been made bankrupt or have a history of defaulting on debts, you will not be accepted for a loan.

And how about becoming a Lender?

Becoming a Zopa member and lending to them means that you get a great interest rate that is far better than any savings rate the banks are offering right now. And, with over £220M lent and a proven track record of managing your money better than banks, it’s safe

  • They credit check every single borrower
  • Your money is spread in small chunks
  • You choose who you lend to

Zopa use all the safety measures that banks use, plus a few more. Any money you lend is split over multiple credit checked borrowers in tiny chunks, spreading your risk. Additionally, they’ll help you price in a margin of safety when you set your rates.