The first lending and borrowing exchange

Posted on : Wed, 16 Sep App: Zopa

How many times have you thought how great it would be if you could get the same interest rate on your savings as you pay for your personal loan? Quite a few I imagine but guess what? Now you can.

Zopa.com is a social lending website that is rapidly muscling in on the market share of what used to be the territory of the mainstream banks. What’s more it won this year’s Moneywise award for the most trusted personal loan provider. Now with all this talk of lending how can it help my savings you may ask? Well, read on.

For every lender there is a provider and in the case of Zopa that can be anyone who has spare cash available and who wants a better return on it than they would get by simply putting it on deposit. The great benefit of Zopa it seems is that everyone’s a winner. Borrowers can get money at lower rates than the banks offer and investors can get greater returns compared to savings accounts and other investment products.

This is no sub-prime or doorstep shark operation by any stretch of the imagination. If you’re investing money in Zopa then it only goes to creditworthy borrowers who have been identity checked, credit checked and subjected to a formal loan application and sanction. The risk of bad debts is further negated by the fact that your money is spread across a number of borrowers and not given to one case. For instance if you lend £500 or more your money will be spread across at least 50 borrowers. This business model has no doubt contributed to a bad debt figure of just 0.9% on a lending pot that has now hit £150 million.

The basic mechanics are you deposit money into your Zopa account which is then made available to borrowers. You can lend anything between £10 - £25,000, for terms of 3 or 5 years and decide on the level of risk you’re comfortable with by studying the Zopa market analysis which splits the demographic into A*, A, B, C and Young. The website has more detailed descriptions of each category. Zopa will then match your money to appropriate borrowers who have been sanctioned by an underwriter and you will have the benefit of a decent return on your investment.

Like with any investment it’s prudent to know the strength of the business in the middle and so checking out the financial clout of Zopa is probably a good move. Having said that, they are backed by some of the biggest names in venture funding and have an executive and non-executive board of some pedigree.

ConclusionThis is a great concept and one that could cause a few problems for the mainstream banks who have seen their reputations nose-dive in recent years. The funny thing about it though is that Zopa, and other similar businesses in the Peer to Peer lending market, are actually doing what banks used to do years ago; taking customer deposits and paying a reasonable return and then lending the money out after a prudent and thorough check of the borrower. Simple!

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