Zopa: The easy way to get a loan?

Sure, you’ve heard of Zopa before. And you’ve most likely gathered that their revolutionary idea of peer to peer lending is violently shaking up traditional financial models. But what exactly does Zopa do – and how easy is to get a loan with them? Read on to find out.

What does Zopa do?

Founded in 2005 by Richard Duvall, a dynamic entrepreneur and former head of pioneering online bank Egg, Zopa is an online market place connecting private individuals willing to lend money and those looking for a loan. Duvall’s idea was that by opening the market up similar to how eBay created a platform for private individuals to start selling products, not only would it become easier to obtain a loan for those typically scoffed at by the big banks – such as freelancers. But it should also, by increasing flexibility and personalised deals, create the possibility for lower interest rates. There is an element of democratisation in this, hinted at by quotes from an interview given by Duvall to online magazine Financial Bet Spreading: “The advisers make their money by taking you through this maze of complexity, and the financial organisations make their money from dirty tricks and penalty clauses that you didn’t know existed. I would like to see a simpler world where these things don’t exist.”

Making things more transparent and easy is therefore the real aim of Zopa – which means it isn’t so much banks, but middlemen such as financial advisers who should be fearing for their job. By cutting them out of the equation, customers can now choose between the standardised solutions of a bank and the kind of freedom that Zopa allows for. Or, as Duvall put it in aforementioned interview: “Zopa’s ambition is to remove product managers from the equation – with Zopa you are your own product manager, you make your own financial products.”

What is Zopa’s cut?

Medial coverage of Zopa has mostly focused on the lender perspective of things. Which is only looking at one side of the story, since Zopa offers incentives to both borrowers and lenders. If, for example, you’re looking for alternatives to the meagre savings rates a personal account can offer, peer to peer lending can potentially (and we do mean potentially, since there is always a risk of the lender defaulting on his loan) get you far higher returns.

You may ask yourself what Zopa’s cut is in all this. Well, it’s a transparent deal: Zopa deduct a 1% admin fee from the transferred capital. Whatever remains is yours and immediately wired to your holding account. While this administrative fee can be considerable depending on the loan at hand, Zopas’s cut only seems fair when gauged against the fact that they’re actively screening each loan request in a bid of allowing only applicants for whom the system really makes sense. As a result of this system of quality checks, Zopa has mostly been spared the bad press their American counterpart of Prosper has (rightly or unfairly) attracted.

How easy is it to get a loan with Zopa?

If you’re looking to borrow money, you, of course, really couldn’t care less what Zopa’s cut is. The question you’ll be asking yourself instead will be: How easy is it for me to get a loan? Well, on a purely technical level, there could hardly be a more easy application model.

• First, use Zopa’s online rate calculator to find out what rates are available for your particular need.
• Before you progress, make sure to counter check the results with the offerings of at least a handful of banks. Zopa is easy to use and a great supplement to the traditional banking system, but it is not guaranteed to offer you the best rates.
• If, however, the rates available at Zopa are to your liking, you can proceed by applying for a loan. Again, this is a perfectly simple and easy step: You provide Zopa with a variety of details while they, in turn, check your credit score and file you into one of five different customer groups depending on your profile.
• After that, if it’s „thumbs up“, you can proceed onto the market – and  then hope for a speedy match with one of the lenders.

While it is technically speaking very easy to apply for a loan, this doesn’t mean that is a piece of cake to actually get the money you’re asking for. While Zopa is more flexible than a bank, it also has its own rules – you really are dealing with human beings here rather than administrative clerks and whether or not they want to make your plight their will remain to be seen.

Concluding, it needs to be pointed out that both as a borrower and a lender, you should use Zopa carefully and with as much prudence as you would approach a bank loan. But at least in terms of ease of use, there really is no reason why you should not consider them a serious alternative.