Zopa UK Review | P2P Lending, Peer to Peer Lending, People to People Lending

The following is a guest post from plonkee money. She writes about personal finance from a British point of view.

The biggest peer to peer lending site in the UK is Zopa. In fact, I think it might be the only one. Here’s how it works for Limeys.

Paying Money In
You can pay money in via bank transfer or paypal – you can also add money by phoning up with your debit card, and by setting up a regular standing order. Money in your holding account earns interest at 0.75% below the Bank of England base rate, the very best savings accounts are currently running at around 0.3% to 0.4% above the base rate. You can easily lend any amount between £10 and £25,000 in total. I you want to lend more than £25,000 you need a licence from the Office of Fair Trading (Zopa can help you arrange this).

Zopa charge 0.5% to borrowers on the money that they have borrowed, and 0.5% to lenders on the money that they have lent out. The lenders fee is collected monthly in arrears and is not charged on any defaulted payments, or if the loan has been paid back early.

Lending Money Out – Quick Lend
As the name suggests, this is the quick and dirty method of getting your money lent out. You can set a term of between 1 and 5 years (in whole years) and then set the rate of return that you would like (after fees and expected bad debt).

For each term length there is a Zone Of Possible Agreement (hence the name of the company ZOPA) for the interest rates. A nifty little venn diagram shows you how your proposed agreement fits in, whether it is above, below or at the zone of possible agreement. Zopa point out that if you set it your interest rate too high you risk your money being lent out very slowly. If you set it too low you will get the money lent out pretty quickly (but you lose out on the return).

Zopa UK

Custom Lend
You can fine tune your offer in all the markets, which are split by length of loan (in whole years from 1 to 5) and credit rating (ranging from A* to C). It shows you the following for each market

  • expected rate of return
  • lowest and highest offers for the last 5 matched loans
  • the percentage that are offering lower than you are proposing
  • how quickly you are likely to lend money out
  • whether you are in the zone of possible agreement

You can also fine tune your diversification, by altering the maximum amount of money you are willing to lend to any one person. As offers are combined before being lent out, it’s possible that two investors could be lending to the same individual and getting different returns.

Estimated bad debt varies from category to category, from 0.5% to 3.1%. I haven’t seen any information on actual hard figures for defaulting.

A new way of lending money that has just been started is via listings. It’s still in beta testing at the moment, but essentially you get to pick which individuals you would like to fund from the brief blurb that they’ve written and their credit score. You then pick an amount and interest rate that you are prepared to offer, and then after 12 days, offers are combined that will give the lowest possible rate for that borrower.

After Lending
Once you’ve offered the money out, it goes into processing whilst the borrower is checked out by underwrites. Once it’s been lent you can monitor it’s performance online. You get some details about the people that you’ve lent to – their age, their general location, and the reason that they wanted to borrow the money (mine are all consolidating debt) – and a brief profile that they’ve written. You can also check up on defaults or autolend more money on the same offer.

Zopa is very easy to use – I especially like the graphical representations – and they really go out of their way to make the whole thing clear.

Thinking in particular about lending money, I actually prefer being one step removed from the borrowers. It makes it more of a business transaction, and I feel less judgemental if I don’t know too many details in advance. I’m also not tempted to bid on loans that aren’t going to be profitable

At the moment I’ve only got a very tiny portfolio of loans (lent out at 7+%), but that’s mostly because I’m trying to keep my finances on auto-pilot, and I think that you do better if you are a little more active, as the market for loans changes. If I have a sum of money that I don’t know what to do with, I’ll probably stick some in Zopa. I don’t think I would bother if they didn’t pay money on the holding account. The payments I’m receiving are too low to be lent out, so that money would be earning nothing without the interest.

Related Posts

  • Carnival of P2P Lending #9Welcome to the 9th addition of the Carnival of Peer to Peer Lending… Editor’s Picks: P2P-Loans.com presents P2P Lending Grows in Popularity as Banks Slow Lending (Are Individual Lenders Suckers or Savvy?) posted at P2P-Loans.com. Pinyo presents Why Borrowers With Bad Credit Pay A Higher Interest Rates posted at Moolanomy…….
  • New Loan Funded #6028 — $2900 in 46 loansA new loan funded this afternoon (Business Consolidation Loan (Loan #6028) — $25,000 10.38%). I participated via my standing order: Low DTI — NAF. Which is this loan was funded as low debt to income ratio and was a non auto-funding loan. The borrow had AA credit and this is within 3 basis points……
  • Lending Club Partners With Alumni AssociationsThe Lending Club blog has posted news that the alumni associations of Michigan, Kansas State and Georgia Tech have partnered with Lending Club to use the LC platform to make or take loans. I think this is a great idea. I would gladly make loans to alumni of my alma matter……
  • Prosper Estimated Return Guidance Pessimistic Example — aka PML #5 — Pay off high interest home improvement cards In my Friday post, I encouraged everyone to think for themselves when it comes to estimated return guidance. It is after all only an estimate. Today, I would like to pimp a listing I have bid on that I feel demonstrates a great return loan, but it is a fairly……
  • How Lending Club Deals With 121+ Days LateMuch to my chagrin, I have managed to pick a Lending Club loan that is now 121+ days late. I thought it a good time to go over how Lending Club handles these situations… They take a different approach and it seems a much more clear cut approach from my……

Related Websites

  • The Dangers of Financial IlliteracyFinancial illiteracy is a growing problem throughout the world, and as the recent housing crisis has brought to light, it can have dangerous consequences. There are a few basic financial tips that everyone can use to increase their financial literacy the easy way, and many of these tips can help……
  • Smart Credit Card DebtCredit card debt is a global problem that has led many to the poorhouse. However, with smart management, credit card debt can actually be a good thing. Let’s look at how to have smart credit card debt that will help your finances instead of hurt it. The premise may be……
  • 5 Things to Look For When Picking a High Interest BankIf you’re interested in leveraging your credit in a safer environment, credit card arbitrage is one of the best ways. In order to succeed, you need to make more interest than your low interest balance transfer offer and for that you need to invest your money in a high interest……
  • Making Extra Money With P2P LendingPeer to Peer lending is quickly becoming one of the hottest new ways to create multiple streams of income. While there is risk involved, there are various methods that can reduce the risks that individual investors face and provide protection against non-payments. If you’re looking for an potential way to……

Online StoresIf you liked this article, vote for it on del.icio.us and stumbleupon.


Leave a Reply

Your email address will not be published. Required fields are marked *