Finance Choices
Zopa Borrowing Exchange
What is Zopa Borrowing Exchange?
Zopa is the world's first borrowing exchange. What they do is very simple: they put people who want to lend in touch with creditworthy individuals who want to borrow - and because there is no middleman, both people get a great deal.
Zopa was created by a core of the team that created Egg - including Richard Duvall (CEO, formerly the Co-creator of Egg) and James Alexander (CFO, formerly, Strategy Director at Egg).
Zopa is backed by Benchmark Capital ? the people who backed eBay - and Wellington Partners, so have some real calibre behind them.
Are Zopa a new company?
Yes, Zopa was formed in April 2005. Despite their relative youth they've already achieved outstanding results:
The minimum loan is £2,000, and the maximum you can borrow will be your individual credit limit (maximum £15,000). Zopa makes its money by charging borrowers a 1% fee.
How are repayments calculated?
Your total amount repayable is the total amount you've borrowed. It includes the loan amount, Zopa's fee, and the total interest you would pay if you repaid the loan over the agreed term. You make monthly repayments. However, you can pay off the outstanding amount on your loan at any time without penalty.
Are Zopa better value than other lenders?
Zopa says borrowers "should expect to get rates as good as or better than the best rates available on the high street". This week, interest rates were running at between 5% and 9%, depending on your credit rating and the term of the loan.
However, Alliance & Leicester, Direct Line and Churchill are offering unsecured personal loan rates as low as 5.9% APR, according to data provider Moneyfacts. "It's hard to see who really benefits from using this service," says Richard Mason at price comparison website moneysupermarket.com
Can I choose who I borrow from - and will I know who they are?
No, you can't choose. Your loan will be made up of money from several different people. You'll be able to see the names of your lenders but you won't get any of their contact details such as addresses.
I might be interested in lending money. What's in it for me?
Zopa says lenders should make a 6%-7% return per year if they relend all the money repaid to them (an average "bad debt" rate of 4% is already taken into account), which it says is 1%-2% higher than the current best savings account rate. However, a quick look at Moneyfacts (go to moneyfacts.co.uk) shows there is no shortage of savings accounts paying more than 5%, with some regular savings accounts paying as much as 7%. Some may feel Zopa isn't offering a good enough return to make it worthwhile, bearing in mind the risks.
What's the procedure?
You can lend up to £25,000 (there's no fee to pay). You pick a market, depending on the level of risk you're happy to take. You choose the length of time you want to lend their money for and set the interest rate you're happy to accept.
Give me an example.
If you lent £1,000 for one year at 6% (and assume everyone pays back), your total interest would be £31.92, not £60. That's because your borrowers do not borrow the full £1,000 for one year, so do not pay interest on the entire amount for that period. After six months you would have received back more than £500, but then you can relend the money and earn interest again.
Is it safe?
Zopa insists it is very safe - it is regulated by the Office of Fair Trading and the Financial Services Authority - and boasts high levels of online security and fraud protection, but concedes that as a new company, it has "a chance of failure".
Zopa members aren't covered by the official banking industry safety net scheme which provides compensation of up to £31,700 (100% of the first £2,000 and 90% of the next £33,000) if a financial institution fails.
Janice Allen at the National Consumer Council says that while it sounds attractive, it's unknown territory. "It's a leap in the dark for everybody, whether you're a lender or a borrower. And there is no track record for people to look at."
So it's not really like a bank at all?
In some respects Zopa isn't very different from the banks. Like them, it will earn commission by selling borrowers its (optional) payment protection insurance, which covers customers who are unable to keep up payments on their loans if they are made redundant or fall sick. If a borrower misses a repayment and doesn't contact Zopa first, it may hit them with a £20 fee. And if an individual fails to pay back their loan, Zopa will "get tough" and use exactly the same recovery processes that the banks use. If it doesn't recover the money, it will call in a debt collection agency.
Zopa is the world's first borrowing exchange. What they do is very simple: they put people who want to lend in touch with creditworthy individuals who want to borrow - and because there is no middleman, both people get a great deal.
Zopa was created by a core of the team that created Egg - including Richard Duvall (CEO, formerly the Co-creator of Egg) and James Alexander (CFO, formerly, Strategy Director at Egg).
Zopa is backed by Benchmark Capital ? the people who backed eBay - and Wellington Partners, so have some real calibre behind them.
Are Zopa a new company?
Yes, Zopa was formed in April 2005. Despite their relative youth they've already achieved outstanding results:
- More than 24,000 registered members
- £3 million of offers on the exchange
- No missed repayments, no defaults, no fraud
- No issues with regulators
- Zopa mentioned in Parliament as a leading innovative FS proposition that meets the government's financial inclusion agenda
- Partnerships with Paypal, Yahoo!, Interactive Investor
- Requests received to launch Zopa from 18 different countries (including US, Canada, Germany, Spain, Italy, Brazil, China, India, Australia)
The minimum loan is £2,000, and the maximum you can borrow will be your individual credit limit (maximum £15,000). Zopa makes its money by charging borrowers a 1% fee.
How are repayments calculated?
Your total amount repayable is the total amount you've borrowed. It includes the loan amount, Zopa's fee, and the total interest you would pay if you repaid the loan over the agreed term. You make monthly repayments. However, you can pay off the outstanding amount on your loan at any time without penalty.
Are Zopa better value than other lenders?
Zopa says borrowers "should expect to get rates as good as or better than the best rates available on the high street". This week, interest rates were running at between 5% and 9%, depending on your credit rating and the term of the loan.
However, Alliance & Leicester, Direct Line and Churchill are offering unsecured personal loan rates as low as 5.9% APR, according to data provider Moneyfacts. "It's hard to see who really benefits from using this service," says Richard Mason at price comparison website moneysupermarket.com
Can I choose who I borrow from - and will I know who they are?
No, you can't choose. Your loan will be made up of money from several different people. You'll be able to see the names of your lenders but you won't get any of their contact details such as addresses.
I might be interested in lending money. What's in it for me?
Zopa says lenders should make a 6%-7% return per year if they relend all the money repaid to them (an average "bad debt" rate of 4% is already taken into account), which it says is 1%-2% higher than the current best savings account rate. However, a quick look at Moneyfacts (go to moneyfacts.co.uk) shows there is no shortage of savings accounts paying more than 5%, with some regular savings accounts paying as much as 7%. Some may feel Zopa isn't offering a good enough return to make it worthwhile, bearing in mind the risks.
What's the procedure?
You can lend up to £25,000 (there's no fee to pay). You pick a market, depending on the level of risk you're happy to take. You choose the length of time you want to lend their money for and set the interest rate you're happy to accept.
Give me an example.
If you lent £1,000 for one year at 6% (and assume everyone pays back), your total interest would be £31.92, not £60. That's because your borrowers do not borrow the full £1,000 for one year, so do not pay interest on the entire amount for that period. After six months you would have received back more than £500, but then you can relend the money and earn interest again.
Is it safe?
Zopa insists it is very safe - it is regulated by the Office of Fair Trading and the Financial Services Authority - and boasts high levels of online security and fraud protection, but concedes that as a new company, it has "a chance of failure".
Zopa members aren't covered by the official banking industry safety net scheme which provides compensation of up to £31,700 (100% of the first £2,000 and 90% of the next £33,000) if a financial institution fails.
Janice Allen at the National Consumer Council says that while it sounds attractive, it's unknown territory. "It's a leap in the dark for everybody, whether you're a lender or a borrower. And there is no track record for people to look at."
So it's not really like a bank at all?
In some respects Zopa isn't very different from the banks. Like them, it will earn commission by selling borrowers its (optional) payment protection insurance, which covers customers who are unable to keep up payments on their loans if they are made redundant or fall sick. If a borrower misses a repayment and doesn't contact Zopa first, it may hit them with a £20 fee. And if an individual fails to pay back their loan, Zopa will "get tough" and use exactly the same recovery processes that the banks use. If it doesn't recover the money, it will call in a debt collection agency.
posted by Barbara Gordon at 1:09 PM
Zopa Borrowing Exchange
18 Comments:
I think that lending at Zopa is a much more rewarding experience than taking out an investment product from a bank. Rewarding financially, plus it's lots more fun.
My experience of Zopa has been a very refreshing one. Zopa seems to be offering money in a new way that's fair and enjoyable and profitable and I'm trying to work out the catch.
Zopa is the brainchild of the founders of the online bank Egg. Simply Zopa acts as an exchange where credit worthy borrowers can be matched with people willing to lend. Zopa stands for zone of possible agreement.
Borrowers are credit checked with only the top 40% of applicants getting approval to proceed further. There are two types of borrowers and the lenders can decide which bracket they want to lend money to. The lender sets the amount of money they are willing to lend, the rate and the length of time the loan will be paid back.
Members are allowed to borrow up to £15000 and can lend up to £25000. Lenders have their risks spread over a portfolio of loans. Borrowers pay a 1% exchange fee to Zopa up front.
Zopa is authorised by the FSA and has a credit licence from the Office of Fair Trading.
One to watch, definitely.
I?ve borrowed a few thousand pounds from Zopa to tide me over through the summer. I've had horrendous experiences of banks in the past ? as a freelance worker and a single mother I don?t fit their description of a suitable risk - so I've had to borrow on occasions from friends and family but I don't always feel comfortable asking them. Borrowing via Zopa is a more formal, yet still personal way of managing my money needs.
Zopa's very different from a bank. You feel like there is an idea behind it ? you don't with a bank. Zopa feels very even-handed and you don't feel that with a bank ? you feel like the bank sets it up so it always wins. I've borrowed £5000 to help me pay for some work to deal with subsidence in my garden. I got what seems to me to be a very good rate, and I can pay it off whenever I want. And I love it that the money comes from real people; it feels like they are investing in my garden
I felt there was a bit of a stigma about self-employment and its 'lumpy income' levels. I was really scared about my mortgage and not being able to renew my fixed rate, even though I had money in the bank. I was worried about getting all the proof of projected income that people told me I'd need. I was worried that people wouldn't think I was 'worthy' as someone who was on PAYE. And yet, I handle my money better than ever now. Zopa is brilliant. The borrowing process was so easy and I prefer paying interest to someone else because it means they ? not a bank ? benefits.
I borrowed to pay for some DIY work. The price was right and it was easy to do. There was no sense of signing your life away. I own my own company and we've just won a major new contract so I know I could repay the loan in a few months time without any strings attached. I really like the idea of cutting out the banks ? with people benefiting from my repayments.
If only it was possible to borrow from the banks at say 6% and lend the zopa clients at say 8% would be pennies from heaven ...........
Unfortunately Zopa has the makings of hell for the lenders.........
If people want to up their return with some extra risk, then why not lend to companies ?, i.e. corporate bonds.
I can't believe the number of apparently sensible people they have on their board - they should all know better.
The idea of person-to-person lending, apart from in a personal capacity, is nonsense.
Out of interest I registered last night with Zopa and after a few questions regarding my credit file they came back and said I have a score of 486.
Does anyone know whether this is good or what. I then applied for a loan but could not get anything higher than 1000 pounds stg.
With thanks,
Yes CIT...486 is good.
If you read their FAQs, it says that 50% of the population are above 400 and 30% of those people are above 470. I think that means that you are in what they consider to be the top slice of the population.
As for only being able to borrow £1000 this is only because the market is young. As everyone has to spread their money between at least 50 borrowers there is a maximum that each person can lend you based on their offer - if their offer is for £1000 then only £20 of that is available for you to borrow.
Add up the maximum that each person in that market can lend to you and you will probably reach a figure somewhere between £1000 & £2000. As more people enter the market, the maximum available to any one person will rise. However, this will take time.
Nonetheless, there are better ways to borrow the money e.g. Sainsburys platinum credit card gives you 0% on purchases for 12 months and a guaranteed minimum credit limit of £3000. You can apply for it as long as you have an income of more than £15K p.a.
If you don't like the idea or t hink it's too much risk, then use credit cards or a bank. The choice is all yours.
I have spotted a massive problem in the ZOPA.com theory which bascially means you have to earn twice the interest rate than you currently do to make it worth while (www.zopa.com) !
I thought I should point it out?
The flaw is, say I loan out £1000 for 1 year at 7.5% ( a well achieved rate on that site and apparently better than the banks!!!!) if I loan out that amount after month one the borrower will pay me back £83.33 leaving me with only £916.67 earning the 7.5 % interest and that amount will become less and less each month. As the money that comes back into the holding account earns no interest ,more and more money is sitting redundant and because you cannot lend out less than £500 you cant do anything with it. So therefore after one year you will only earn £37.50 interest over the year on the £1000 loaned (or 3.75% in interest) less than my current savings account and that is without factoring in the approx 1% possible bad debt factor!!
I suggest the Zopa either decreases the minimum lend or either allow lenders to earn interest on the non loaned money held in their accounts
this obviously wont affect borrowers on the site at all. overall if this gets sorted it will be an awesome tool
Thats kind of the whole thing about Zopa though Taylor - that you need to actively manage your fund so that it is always 'loaned out' so to speak.
It is up to you to re-lend the money when it comes back if you see what I mean - the idea being that you should never have any money in the 'holding' account.
that make sense?
I registered with zopa a while ago out of curiosity/how good the rates were, got a credit score of 551.
Had a phone call a couple of days ago, they have credited my account with £30 to lend with, if successful I get to keep all the interest and original £30. I know Its a incentive to get me going, but I will watch & wait & see. I might just be money for nothing!!
Well zopa has now been around a long time and finally its rates, in some limited circumstances, have got competitive.
The fact that this is possible, is rather worrying in some ways. Why people are willing to lend at 4.6% when they could put it in a savings account and earn more, i don't quite understand. However the fact that they are means cheap borrowing is now available and thus moneysavers should grab it.
Can anyone confirm whether or not interest is payable only up until the date you repay or is it the whole amount of interest?
The T&Cs state:
5.7 If you want to exercise a right to repay early under the Loan Conditions (which you may do so free of any charge, except interest payable to the date of repayment), please email us at contactus@zopa.com .
The "date of repayment" doesn't seem to be defined in the T&Cs so is it safe to assume it means the actual date of repayment rather than some prior agreed date? I can see that Zopa wouldn't be particularly bothered about early repayments. They will end up getting their 1% whatever and presumably would rather we chopped and changed as they get a new 1% each time.
Matto:
Staff at Zope also seem to be trying to make the wording clear, you can follow their blog here
http://blog.zopa.com/ (Feb 25th)
Part of the blog states
----------------
Just to be clear: when you repay your loan at Zopa all you pay is the capital and interest due up to the point at which you repay. It?s very simple.
You don?t pay:
- all the interest due on the full term of the loan
- an undue proportion of the interest on the full term of the loan
- a penalty (eg. a termination fee).
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