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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.
AVERAGES 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.