Wednesday, 2 March 2011

Peer to Peer Lending, With a Look at Zopa




Lending Versus Saving

Since blogging from my high horse on the subject of the possible Barclay's takeover of Egg's UK credit card accounts, I thought I'd take a look at peer to peer lending. It's springing up all around us and, on first quick glimpse, my mind automatically jumped to the dreaded game of 'money lending'. However...

Who or What is Zopa?

I took a look at both their website and their affiliate programme to learn the following:
Zopa is a peer to peer lending and borrowing exchange where real people sidestep the banks to get a better deal.
- They offer loans of £1000 to £15000 for up to 5 years.
- They're also one of the only loan providers allowing borrowers to repay their loan early with no penalty or sneaky fees, so it's a really flexible loan.
- Zopa lenders also offer loans at some of the lowest rates in the market.

Unlike the high street banks, Zopa claims to have, "no shortage of funds, so there's no crunch!"

All highlighted text links are clickable and should take you to the relevant page on the affiliated Zopa website.


To start me off, I played around with their loan calculator and was pleasantly surprised by their rates. Considering some credit cards are charging an astonishing 20%+ in interest, the Zopa rate for £5,000 over a 60 month period was refreshing, to say the least. Despite there being a £130 fee attached to the loan, this seems to be incorporated into the overall loan, which was listed at a fixed 7.7% - that's 0.2% LESS than a low rate credit card is currently offering... frugalers, are you following my drift on this one?

I currently have no debt accruing interest, I'm very lucky and appreciate this fact. I worked extremely hard to get here. But, if I did have debts, I'd seriously be looking at the possibilities offered by peer to peer borrowing in order to reduce the interest charges. The rates are half, or even as much as one third, of some credit card options or hire purchase deals. There are also no penalties for early settlement of a Zopa debt.

But Frugaldom isn't just about giving debt the heave-ho as quickly (and as cheaply) as possible; Frugaldom is about attaining and maintaining a debt free status in order that we can begin to increase our overall savings. We like keeping a tight rein on the costs of running our household, microholding and/or business. We like seeing where every penny goes. Not only do we need to pay off everything we owe in a timely and reliable manner, we also enjoy the benefits of being in a position that enables us to help and support others. We love to reduce, reuse and recycle. We love to increase our savings! So how might peer to peer lending help us?

Joining Zopa offers you the chance to become a lender - actually lending your money to others. The current average rate of return showing on site is 7.6% - that's about three times what my top savings account is paying! I'm assuming there is an element of risk attached to this type of 'investment' but Zopa does have quite an extensive set of safety measures in place.

I'm now beginning to wonder how lucrative it might be to invest some savings into becoming a lender, despite the old saying, 'never a lender nor a borrower be'. In these days of austerity, collapsing banks and unstable property markets, there seems to be risk involved in almost everything.

At the same time, there are many more people seeing sense, becoming more money savvy and reducing their debts in whatever way they can. For many more, the notion to set up business on their own can mean bashing their head against a brick wall trying to get finance - peer to peer lending could be the next big thing. If it is, do you want to miss the boat?

Find out How Borrowing Works here

Find out How Lending Works here

Take a look at the Frequently Asked Questions for lenders

Find out more - Calculate Loan Repayments here

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