Borrow From Zopa And Stick 2 Fingers Up To The Banks

Zopa is a new way for borrowers to get an unsecured loan – instead of getting your loan from a bank or other financial institution you borrow the money from other members of the public, a kind of peer to peer system. Here’s how it works…

Lenders sign up and transfer any money into their account that they wish to lend out. Zopa acts as the matchmaker and introduces the borrower to the lender. The borrower gets a great interest rate and manages to completely avoid having to do business with a bank or other financial institution while the person lending the money gets a much better return on his investment than having it sat in a savings account that doesn’t even keep up with inflation – everyone seems to be a winner, apart from the banks of course.

It’s not quite that simple – is it ever? – but that is more or less how Zopa works.

Similar to investing in the worlds stock markets, the lender gets to choose which pool his money will be in – high risk, medium or low. If he goes for safety and only wants borrowers with an A+ credit rating then clearly his risk of a default is minimal and so the return he gets back reflects this. If he is prepared to lend his money to 21 year olds straight out of university with little or no credit history then obviously he is taking a bit of a gamble and so he will get a higher return on his investment.

As a borrower the exact interest rate you will be offered will of course depend on your own credit score but it is pretty much guaranteed to be a better rate than any bank or building society simply because – well – you aren’t dealing with a bank or building society.

According to Zopa 51% of their borrowers requiring £5000 over 3 years are paying 8.2% APR which is cheaper than the all the usual suspects including the Post Office, First Direct and Alliance and Leicester. It is almost half the 14% Smile charge their not so smiling if they are reading this customers.

Another benefit of Zopa is that there are no hidden costs involved while as we all know many other lenders like to surprise us with their additional charges right at the end, just before they release the funds.

These cheap rates come at a price though. The lenders are not large corporations who can swallow bad debt by spreading it around other customers or requesting a Government bail out. The lenders at Zopa are pensioners, small time entrepreneurs or just people like you and me who perhaps happen on a nice winfall and are building a portfolio of investments. Whoever they are they will have invested between £10 and £25,000 and they want to limit their risk. You are not going to be accepted for a Zopa loan if you have:

• Lots of other unsecured debt yet to be paid off
• A poor credit history
• CCJ’s
• Lots of credit cards that are at their limit
• Less than 3 years address history

If you are thinking of borrowing from Zopa then you can apply without it showing up on your credit report – another reason we like Zopa so much. Usually when shopping for a loan, each time you fill out an application form the lender runs a credit check and the fact that your report has been viewed shows up on your file.

Each time you get turned down or don’t accept a loan that you are offered because you don’t like the terms, additional charges not mentioned previously, interest rates etc. your chances of being accepted by the next lender you apply to will have decreased.

This is because when this new lender checks your credit report they will see that other lenders also recently accessed your file. They then assume (rightly or wrongly) that those lenders turned you down. This sets alarm bells ringing and they are less likely to accept you as a customer.

Zopa do check your credit report BUT it doesn’t show up when other lenders or credit companies view it so you really have nothing to lose by requesting a quote. Other reasons for choosing them over other lenders include:

• The interest rate you get quoted is fixed for the term of the loan
• No additional or hidden costs – the Zopa fee is included in the quote
• You can repay the loan early to reduce the interest costs with no penalties
• You aren’t adding to the fat cat bonuses paid out by the banks

This writer applied for a £5000 loan over 36 months and fell into the average bracket as I was quoted 8.2% fixed APR making the monthly payments £156.55 for a total repayable amount of a very reasonable £5635.97 and that includes the modest Zopa fee of £130

Want To Become a Lender With Zopa?

You can choose from 10 different markets to lend your money in and you can mix it up if you like. The lower the credit rating, the higher the interest charged and so the higher the return on investment:

• A+ for 36 or 60 months
• A for 36 or 60 months
• B for for 36 or 60 months
• C for 36 or 60 months
• Y (20 to 25 yr olds) for 36 or 60 months

The average return on investment for a lender after all fees but before any bad debt is taken into account is 6.8% per annum. If you are thinking of investing as a lender with Zopa but are put off by the risk of bad debt it is kept to a minimum by spreading your money over lots of different borrowers. If you are familiar with the way the Betfair exchange operates, Zopa runs much the same.

You will find you get a much better return than having your money sat in a savings account and there is a lot less risk than playing the stock markets with your money or kissing it goodbye by hiding it away in a dodgy offshore Icelandic bank.

Whether borrowing or lending you can visit Zopa for all the details by clicking here.

Want to know what kind of country the United Kingdom would be today if the £1.3 Trillion spent on bailing out the banks had been spent on our roads, hospitals and schools?

Click on the picture to read Neil Lyndon’s excellent alternative spending program and then decide if you would rather get your next unsecured loan from your bank or from Zopa.