* Prices may differ from that shown
Zopa is a peer-to-peer lending site, where borrowers apply for loans that are supplied not from a bank, but by other people. ZOPA stands for "Zone of Possible Agreement", which is the range of interest rates that lenders are prepared to offer and borrowers agree to pay. The best thing about Zopa is that lenders can offer a better rate of interest than a bank would pay them, and know that anyone borrowing is still getting a better rate than a bank would offer. It's not just a lending site - there is an active community and social forum behind it where users can chat. This social aspect is one of the biggest benefits of Zopa.
For borrowers, Zopa usually offers a pretty good interest rate and most people can quickly qualify for a Zopa loan in one of the bands, even if they may not qualify at a bank, as the lenders at Zopa can choose what risk they want to offer to. It is also useful for lenders. With the base rate at minimum and savings producing very little income, Zopa is one possible alternative for investors and people looking for a place for their savings. The rate of return varies, depending on the risk and length of time of the loan, and you can choose your targeted interest rate. If you set it too high, borrowers simply won't borrow and other lenders will be lent out first.
It was one of the first peer-to-peer sites on the market and tried out several approachs before it settled down to its current form. Ideas Zopa has tried and no longer offer are listings (effectively an auction site for loans, where borrowers made personal appeals), paying into the account through Paypal, and a full range of 1-5yearly loans across six markets. One thing that has stayed however is that Zopa loans can now be used as part of your Sipp (Self-Invested Pension Plan) so if you are looking to diversify away from shares and funds, this provides an option. However this option is only available from some pension providers, not all.
They have now refined these down to offer four main credit bands assessed by risk (A* to C), with two lengths of loan available in each, and a special seperate band (Y) for young borrowers such as students.
To apply for a loan, you say how much you need, and for how long. Their software works out what rate you qualify for and suggests it. If you agree then you can accept the loan. You can check the rate without being a member, but the site will not then supply a loan until it has run a credit check and assigned you to a band.
Lending is equally simple: once you have signed up you put money into your Zopa account by bank transfer and then create Lending Offers, setting the market duration and interest rate you want. Usually only £10 of your funds will go to any one loan, making sure the risk is spread if the borrower defaults, but you can raise this limit (in £10 blocks) to allow more to be assigned if you want to lend your funds quickly. All the lenders' offers for one market go into one pool for that type of loan and the ZOPA Zone interest rate is created from these. Your offer is then matched with requested loans, and assigned to them at your desired rate. The lowest requested rate is always offered first, which helps keep rates down.
Each month the borrower pays back as they would a standard loan, and each lender gets their share of the repayment added to their Zopa Account. You can set it up to automatically relend money at the rate you have set, so it doesn't simply sit there. One consideration for lenders is that Zopa income is paid untaxed, but qualifies for tax, so if you are a tax payer you need to declare it to the tax office.
One of my major initial problems with Zopa was that there was no way to get your money quickly, so I allowed my initial investment to lapse and withdrew the funds. However, they have solved this and now have a Rapid Release Option: you can sell the loans back onto the market and get your funds back. Another lender in the same market will take them over, crediting you with the amount. This costs you a small amount but does mean that your funds are not permanently unavailable if you have a genuine emergency.
Ethically Zopa is fairly sound - if anyone objects to big banks for example, it completely removes them from the equation, making it all about people. The funds currently in the lenders' Zopa accounts are held in a seperate secure account that is protected if the company goes down, so your investment is pretty safe. The social aspect actually means the rate of default is low: It's people lending to people, not a corporation. At any time it displays how much money is available to lend, what rates are on offer and a few nice titbits like borrowers' most common first name.
This gets a four because I liked the Paypal facility which they have withdrawn, because the returns may vary significantly, and because the tax paperwork may make it too much hassle for small investments (under £100).
I can't advise on the borrowing side of it, but as an investor I like it. Overall, this is simple, easy to use and a good way to diversify a portfolio.
I first started lending money on Zopa in May 2010 and was initially apprehensive because I had never heard of Zopa never mind the concept of 'social lending' or 'peer to peer lending'. However, it has been actually pretty rewarding overall as my bank pays little interest on my regular savings whereas Zopa has offered a pretty good rate of return on what was quite a small investment. I have earned about 7.2% on my investment which actually makes me cheaper to borrow from than a bank - so the borrower wins and is much better for me because I make a much larger interest rate on my savings.
The site itself is very easy to use and is easily navigable. There is a Frequently Asked Questions (FAQ) section that covers probably everything you would want to know either as a borrower or as a lender. If you cannot find a suitable answer to your query which has never happened to me, but you never know, then you can contact Zopa via many other mediums. They have an office in New Street London - the address can be found on the website under Contact Us - and they say you can just pop in there. Also, they can be contacted by: a contact form on the computer, phone, Facebook and even Twitter. As I said I personally have never had to contact them so I do not know how responsive they are but it is reassuring to know that there are so many ways in which to get in contact with them.
The site explains in more detail than I can remember about all the security and safety measures it has in place which is what reassured my initial apprehensions. They are mention how they themselves are regulated and how your money is held separately so that it is safe. I am glad to say that so far none of my debtors (can't think of a nicer name) have defaulted yet and I have absolutely no reason to think that they will. Every time you log in you need to enter your username, password and finally memorable detail which changes (there are 3 to remember). This again is very reassuring especially to a new user.
The site also makes it very easy to transfer money in and out. I use a bank transfer and it takes three days to pay money in and the same to transfer money out. This is very convenient and means that all money that has been paid back to you from your debtors can either be saved up and feed back into your account as a lump sum or you can feed it back in monthly or even as and when you need it which is what I do.
One significant consideration to bare in mind is that you only have two choices as it stands of loan length and these are 36 months and 60 months. You must therefore have the ability to be able to invest money for this amount of time and not need it because once you have lent it out you only get back a small amount from each borrower at a time.
How it works (roughly)
You put money in
You set your preferred interest rates and groups you are willing to lend to
Zopa matches borrowers to best lenders
Borrower receives the money
Borrower pays back capital borrowed and interest monthly
Importantly you select who you will lend to from a range of risk. There are A8 borrowers who presumably have impeccable credit ratings but there interest rates are lower. The groups go through from A* to A, B, C and Y for young.
Risk can be lessened because you can pay in multiples of 10 (I think) a maximum amount to anyone person. For example if you lent out £100 then you could lend £10 to different people. They then each pay you back at the agreed interest rate. The risk is therefore less because you aren't as reliant on one person to pay back.
If you type Zopa into Youtube you will find an advert which can also help you better understand what Zopa is all about.
Average Lending Rate = 7.6%
A* 36 months = 6.4 %
A 36 months = 7.1%
B 36 months = 8.5%
C 36 months = 10.4%
Y 36 months = 9.8%
I personally am only interested in the 3 year returns because who knows how the economy might look in five years time. ISA's may be returning 8%.
An additional award of £50 is credited to your account if you can refer someone to the site who then goes on to lend £2000 or more.
Oh, I nearly forgot, silly me, Zopa makes its money from charging the lender a fee however this is fairly minimal and I can assure you does not eat noticeably at all into your interest accruement. I think so far my Zopa fee stands at below 1%.
Lastly then as I nearly forgot this as well Zopa invite you to their birthday parties....I know how random and also they send you a weekly and monthly newsletter by email which I always delete so I am afraid I can't help you much with that. From memory though I'm sure it tells you something like that weeks rates and such like.
LITTLE BIT OF FUN
Average borrower is called David who is 38 years old and is from Birmingham. He is borrowing £4,847 for a car.
Average lender is also weirdly enough called David and he is 44 years old. He is from South West London and has lent out £2,213.
Zopa lenders are loaning out as it stands £4,629,975.
On the 8 March 2011 218 new borrowers joined Zopa. Looks like this bubble is most definitely not going to burst.
If you want to join please write a message and i can refer you. This costs you nothing and means I get some money. Woo.
It is not very difficult to setup account with Zopa and when you read all this stuff about how good is to invest in something independent from the banks, such great returns comparing to sving accounts you wouldn't think that out of £500 you put in (lent to others) £ 52 is a bad debt already (after 2 years in which you cannot touch your own money unless returned earlier). Stay away clear from this socialistic rubbish. YOU WILL NOT MAKE ANY MONEY HERE. Unless you are borrowing from suckers like myself.
Zopa is a market for personal debt which fallaciously claims to offer in entirely new asset class for lenders as if shares would be unaffected by their customers' debts turning bad or by the interest rates on their own financing.
The headline rate of 8% Zopa advertises at first looks attractive but if we treat the "uniquely uncorrelated" claim with due scepticism and compare them to shares and bonds that return starts to look a lot more pedestrian even if we take the advertised return to be scrupulously honest. Over the last 12 months the FTSE100 has returned 22% excluding dividends and that doesn't include all the AIM shares which have doubled lately and a total return of nearly 60% from AXA pan European high yield bond acc. In fact Motley Fool recently calculated that if you had brought a random AIM share you would have been more likely to double your money than to lose a single penny.
Given that it is personal debt which got us into the financial crisis in the first place I would want to see a far more competitive return from the sector during a recovery year.
When you first deposit money with Zopa it is stranded in a 0% holding account, often for months until a borrower is found, of course this period is cleverly accounted away before Zopa publish their expected returns.
Zopa's ingenious accounting stretches yet further as they quote a return over a year but return your funds gradually and make no allowance for tax.
The whole system is incredibly poorly managed, they made me an offer over the phone because I hadn't lent any money for a long time but when I accepted it quickly became clear that I wasn't actually eligible and the offer was withdrawn again. The administration is so pitiable they are unable to cope with deposits over 25k and were genuinely shocked to learn that a capital loss cannot be used to offset income, yet rather than dealing responsibly with these many issues they spend their time incessantly emailing you about who had the best username this month.
Zopa gives you very little flexibility, the shortest period you are allowed to buy for is 12 months and there is no secondary market.
The introduction of listings is supposed to be a step in the right direction as it supposedly gives you responsibility for picking particular risks but the things people write in their profiles are entirely unverifiable.
For the most part Zopa insist on restricting you to the low risk end of the market which I see very little point in, if you believe it is a good investment you want reasonable exposure, if you don't then why buy at all?
It's like these "cautious" managed funds you get in equities; if the manager doesn't even claim to be able to beat the index then why hasn't he resigned yet?
I'm pretty new to Zopa, having only joined in October 2009.
I found the site while I was looking through the Earn Extra Income forum on MoneySavingExpert.com.
Basically put, it's a way for people like me to lend to other people like me.
What happens is that you put money into your Zopa lending account. You then set up what demographic markets you want to lend to, at what rate and how much per loan you're prepared to commit. The Zopa system tells you your approximate % return and the likelihood of your offering being accepted (to stop people ramping the rates too high).
You can lend any quantity you want (in multiples of £10) but Zopa recommends that you have lots of small amounts spread over lots of people to minimise your losses due to bad debt.
So you set up your offer, put in your money and wait for someone to borrow from Zopa. Zopa then make up the total value of the loan from however many people are lending at that rate and averages out the APR to the borrower.
So each loan could be financed by 10-1000 people - all putting in their £10-£1000 (or whatever).
From a borrowers point of view, that rates tend to be lower then you can get elsewhere (but not always).
From a Lenders point of view, you can 'invest' your money for a modest return (but generally higher then a savings account) while helping your fellow man (or woman) to get affordable credit.
It's not for everyone and there are risks (bad debt mainly) Plus you have to declare the income to the taxman. But if you're looking for a slightly more enjoyable way to generate income (and you can afford to lose some to bad debt) then it's definitely worth a look.
ZOPA - full name Zone of personal agreement is a website which competes with the banks in lending out money to people in need. However ZOPA is a much safer way of doing this. The site has been running since 2006 and all the glitches have been worked out now.
I havent personally attempted to borrow but I can imagine that it is pretty difficult to be eligable to borrow money. There are 5 different categories which people fit into based on their credit rating, affordability and stability. These are A*, A, B, C and Young (age 20-25). This may appear as if C has a low credit rating however people in C actually have a higher credit rating than most people in the UK. The young category is for those who are possibly too young to have a credit rating.
IMPROVING YOUR CHANCES IN BORROWING
When trying to get a loan you must provide basic information like bank details, credit rating, reason for borrowing and your income and outgoings each month. However if you take a more personable approach and give more details like details on what your outgoings are then people will feel more confident you have your finances in order. You can also write a sort of plea for the money under your personal profile where you explain why you are borrowing the money and make people feel confident that you wont default.
You can lend anything from £10 to £25, 000, anything above £25 000 you must ask ZOPA because they want to prevent big businesses taking advantage of the system. Lending out is easy you can decide on your exposure for each loan which can be a minimum of £10 but could be the full amount if you really want. When deciding to lend you have two options.
1. Auto loan - This is where you set your interest rate and maximum exporsure in each loan and just leave it, the site will do the rest, however setting your rate too high will mean people will undercut you and you could risk having your money lay dormant.
2. Hands on approach. - This is where you take a more practical role in your lending you can read the information that the borrower leaves and decide on how much you want to lend and at what rate. You can also watch the market and if you see that your offer is going to be too high then you can lower this.
ZOPA are very precautious over who money is lent out to which is why they have less than 1% default rate, something banks could only dream about. However in the event of a default from a lenders perspective your money is relatively safe, ZOPA take more precautions than a bank at ensuring your money is safe, they remain in contact with the borrower and create an action plan on what will happen. In the event of the borrower completely defaulting your debt will be bought off you at 10% of what you lent out at from a kind of debt collectors. This is why people tend to keep their exposure to a minimum on each loan because 10% of £100 is only £10.
The forum is always buzzing and if full of absolutely geniuses who have been on the site for ages and will happily answer any questions thaty you might have. You might have to ask them to simplify their explanations though, boxes of wine is often used to explain.
Apparently, inflation is zero. Unfortunately this news doesn't seem to have percolated through to my house insurers, and neither will it, when the time comes for my car insurance to plop onto my mat.
Coupled with savings, even those in tax-free Cash ISAS earning 'damn-all', the pressure on income is clearly downwards whilst the prospect of zero inflation would appear to be only in the heads of those that calculate it.
It was just a couple of months ago, whilst reviewing what my various savings were earning that I hunted around for something a bit more 'interesting' (pun intended for once) in which to invest further savings. Note that; 'further savings'. I'm not adventurous or silly enough to start swapping them over.
It was in the 'money pages' of some broadsheet Sunday paper that I first read about ZOPA - Zone Of Personal Agreement. I think the phrase 'in glowing terms' applies.
In a nutshell, it's an on-line 'dating agency' for lenders and borrowers which has been going now for a few years. However, if that all sounds a bit scary to a potential lender it isn't for several reasons. I can't see any reason why a borrower would find it scary either, unless of course they find out something they didn't want to hear, like their credit's no good.
Like all lending organisations, there's a slight difference between the interest rate being offered to borrowers and the net amount paid out to investors, so no change there you might think! This difference is Zopa's very modest fee for handling the process, which includes very stringent credit checks (way better than the banks WERE doing, although they may now be taking the hint), chasing late payments and eventually defaulters through the usual legal channels, and operating profit to run the service. Some of the other opinions I've seen written 'elsewhere' relate to borrowers who, having tried to get a loan are less than enthusiastic having been turned down - well sorry, but Zopa can be as careful with my money as they like.
Borrowers are graded into risk categories, ranging from A+ to C, with a special category (Y) for young borrowers yet to gain any credit history. Thus, the interest charged is dependant on the outcome of credit checking prior to offers being made. Obviously C and Y are charged more, whilst the A+s get the cream of the crop. I can only assume from the number of A+ borrowers on Zopa's books that their loan rates are still competitive compared to those being offered by banks. Some borrowers have even been asked to present themselves at Zopa's offices with proof of address, earnings etc.
Another reason that it isn't scary, especially if you stick to 'default settings', is that the most you ever loan one person is £10, thus for my £500 trial investment, I played Shylock to 50 Merchants of Venice. Actual loans are made up of composite offers from quite possibly hundreds of lenders. Therefore with a documented default rate of only 0.28%, there's no chance you'll be the lender who cops for the whole loss, and in any case, not all defaulters do it on 'day one' having paid some of the loan off first.
BUT WHAT OF THE REWARDS, LAD?
Well, it's early days for me yet, but in the third month down the line since lobbing in £500, this has grown, albeit it shakily to start with to over £505, but bear in mind that the first month is a 'dead month' as far as income is concerned, so I'm really looking at more like 1.5 month's profit, and I think anyone earning £36 per annum from their £500 would be quite pleased with 7.2% these days. Admittedly, this is pre-tax, but even so, it compares very favourably with any Cash ISAS that I know of.
Come to think of it, the second month is pretty quiet too, since a lot of borrowers sign up, and then push their first payment date as far into the next month as possible, making the prospect of nearly a two month wait for any action. However, Zopa are wise to this and charge them accordingly for their first payment. I have opted for 36-month loans, and so each month, I get 1/36th of my £500 back plus interest, the two amounts being separated out on Zopa's excellent web site, although, if you opt to 'auto-lend', which I have done, anything in my holding account, capital and interest combined, gets 're-lent' as soon as it reaches £10.
If you don't auto-lend, you can choose what you want done with the money in your holding account. This could include having it all sent to your bank account, or using only part of it to re-offer £10 into the loan system. Of course, if you opt to have it all back as and when it arrives, you have to bear in mind that this will only last 36 months (or 12 or 60, depending on which 'market' you have joined).
My own strategy if you can call it that, having satisfied myself that this is £500 I can do without, is to grow it for a couple of years, and then start taking income from it, leaving just enough to recycle back into it to keep the current of lending level up.
Don't put money in that you'll want back at any moment - you can't have it, except in 36 instalments!
Ironically, this seems to be as stringent for lenders as it is for borrowers. I had to confirm the details of loans and credit cards against my name (at Experian, no doubt), although it was more by luck than judgement that I correctly identified my car loan, which was lent by a company I'd never heard of, but which matched my SEAT car loan exactly - it's a pity that my loan agreement only shows this as VAG Finance, and not the real lenders.
Your first bank transfer takes about three business days to clear above and beyond the usual process, so don't be impatient.
Finally, you get to lend the money. Of course, you can dive straight into the money market and lend to specific requests for a loan, but there's always the spectre of the borrower being one of the 0.28% defaulters to scare you off! I'd also steer clear of borrowers who state 'Consolidation of existing debt' as a reason for the loan - where's the proof that they've cut up their credit cards? Also, as with 'wheeling and dealing' with stocks and shares, this requires a good deal of micro-management with frequent visits to the www.zopa.com web site, at least in its infancy.
For myself, I preferred a more hands-off approach, letting Zopa split my money into £10 chunks and adding it to their stockpile of money on offer to a split of borrowers across the whole risk/borrowing rate spectrum.
So far I have lent to 33 A+ borrowers at 7.12%, 15 A's at 7.53%, 3 Bs at 8.60% and 2 Y's at 10.20%. For some reason, the C's didn't take the bait, or maybe most C's are Y's too! It would seem that my estimate of 7.2% p.a. looks about right.
You'll notice that this adds up to 53 borrowers, not 50. This is because one chose to repay his loan early in full (won the lottery?) allowing me to recycle the loan. Another £20 accrued from normal capital repayments and interest has already been put back through the mill as a new loan. This means that up to month 36, my number of borrowers will increase steadily - I'm hoping to more than double them, so that as the number dwindles by 50 spread over month 37, I've still got at least 50 and will switch 'autolend' on and off to maintain the level, the remaining cash then becoming income, albeit modest.
You'll also notice that the spread is cautious with the majority lent to good risks at lower rates. I didn't want to be greedy and run the greater risk of defaulters, but those prepared to spend more time on the site might be able to make more profits this way. After all, the web site front page does state that in the last 12 months, their lenders have earned on average 8.6%. Yes, this does get updated, last month it quoted 8.8%.
USING THE WEB SITE
Security is pretty good - well, they ask the same kinds of questions that an on-line bank would if that's anything to go by.
As well as the usual log-on ID and password, you have to answer one of three security questions which rotate on a regular basis.
The usual 'padlock' certifies that this is a recognised secure site, as does the URL which turns to being a 'https' site as soon as you try to log on.
I purposely set up a new GMail e-mail address for use by this site, and in three months, I haven't received one single item of spam, just their weekly newsletter which is useful if you want to take the totally hands-free approach such as I am at the moment. Of course, you'd want to be a bit more hands-on if your weren't automatically recycling profits into more loans, as you'd need to visit the site to access your money transfers back to your bank account, but the newsletter is nonetheless very useful and like all good e-mails, it NEVER provides you with a log-on link.
I can only speak as a lender, but the amount of information provided is second to none.
In checking my 'Loan Book', the term alone making me feel even more like Shylock, I can split my offerings several ways.
I can split them by payment date so as to estimate when I can expect income.
I can split them by status, so that I can see how many have been paid in full, how many are awaiting approval and more importantly how many are in full swing.
As you'll already have seen, I can split them by credit rating.
PROS AND CONS
You may personally suffer from defaulters - however, Zopa chase late payments and even take people to court if necessary. Having said that, thanks to Zopa's nit-picking stringency, the default rate is something that banks can only dream of, even if it is what they should have been striving for all along.
Currently, the Inland Revenue only want to know about interest paid - they're not interested in how much Zopa have charged you or how much default you have suffered. Zopa are currently defending their corner on this issue, as it seems a little unfair not to tax actual financial gain.
Unlike money put into the bank or building society, you can't have it all back at once, only in monthly instalments.
Thanks to Zopa's low overheads, (one web site and one fairly modest office in London) interest rates are way beyond what you can reliably achieve elsewhere.
There's a lively on-site forum where you can 'chat' with all kinds of investors and borrowers, getting most of your questions answered in minutes usually.
A useful addition to any varied 'portfolio' (ooh 'ark at 'im - portfolio indeed!), but for my own purposes, it'll remain just that until I'm happy that I've had at least £500 back.
Will I put any more money in? Yes, but only windfalls, like every time I remember to claim my cash-back from Carphonewhorehouse!