Zopa was launched in the year 2005. The company has been in business for over 13 years and has lent more than £3 billion from almost 80,000 investors. It is an example of peer to peer lender who is trying to be a bank. The company is in fact, spinning a part of their business to create ‘Challenger Bank’ in the UK. However, remember that Zopa is not a bank and just like any other investment your capital is at risk always. In the UK there is no government backed insurance like FCSC to protect your capital.Zopa holds the crown for being the first peer to peer platform in the world. The company continues to flourish in the market and has become on of the four major players in the peer to peer industry in the UK. The company has been able to maintain its throne because of another great tool which is the Innovative Finance ISA (IFISA).
The company got its approval to offer ISAs in the year 2017 by the Financial Conduct Authority (FCA). Zopa started offering ISAs at the rates of 3.9% and 6.1%. since Zopa is UK’s biggest peer to peer platform it is important to know the company’s background, history and achievements.
What kind of loans can you get from Zopa?
With Zopa you can get a personal loan of almost £1,000 to £25,000. You can use the loan for several things such as home improvement, car, paying for a wedding or to pay your debt and much more.
What type of interest rate will you get with Zopa?
Personal loan with Zopa had a fixed interest rate meaning your monthly payments will remain the same during the term of the loan. Having a fixed interest rate can help you in budgeting so you will know how you much you need to set aside to repay the loan every month. Zopa’s interest rate range from 2.9% to 34.95 but remember that the marketed APR on any deal needs to be given 51% of all successful applicants. The real interest rate that you will be given will depend on several factors which include:
- The amount you want to borrow
- The term you need to borrow for
- Your credit history and financial conditions
Example of representative: if you borrow £5,000 along with a borrowing free of £30.00 then you would have to make 36 monthly payments of around £146.39. the total payable amount will be £5,270.00.
How long does a Zopa Bank loan last?
You can get a loan from Zopa lasting from anywhere between one to five years. You can also pay back your loan early if you can and want to. The company wouldn’t charge you any early reimbursement charges.
Peer to Peer lending
Zopa offers peer to peer lending which allows you to lend finance to other people who have been through a credit check.
Amortization: usually all the personal loans are amortized. Amortization is paying off the debt with a fixed schedule of repayment in regular instalments over time. Amortization further decreases the risk of loan in comparison to a non-amortizing loan in which you receive nothing in the end of loan term or you receive interest monthly and the capital repaid at the end of loan term.
How you can apply for a Zopa Loan
You can apply for Zopa loan through their official website. But remember that the company doesn’t tale applications over the phone. In order to apply for loan, you will need:
- Address history of the last 3 years
- Employers address
- Bank details
- Income and expenses
Do you qualify for the Zopa Loan?
In order to be eligible for Zopa loan you need to be:
- At least 20 years old
- A resident in the UK
- Be employed or retired with a pension
- Have annual income of minimum £12,000
- Signup Process
- You can open an account with Zopa quite easily, you just need the usual ID and the anti-money laundering checks. Once the company has verified you through one UK’s credit agencies then you will be immediately approved. You may also have to send the company a copy of your driving license or passport along with a utility bill or your bank statement.
Zopa has stated on their website that the company minimises risk for investors in three ways, through a prudent credit risk policy, an effective recoveries policy and diversification. Your security is assured through loan diversification, safeguard of service for its access and classic investments and missed payment management.
Safeguard is an essential compensation scheme which particularly steps in whenever a loan is classed as defaulted. It then buys the loan and repays capital along with the missed interest of four months.
Important: a loan will be considered default if there have been no repayments for four months. This can cause loss of your investment funds.
Diversifying loans is done by Zopa automatically. All the diversification is done in the background because of the way their platform works. Company’s website has a lot of the interesting information on loan distribution and diversification. Even though it is interesting, it is not actually of any use since their auto invest portfolios does everything behind the scenes.
Benefits of Zopa
- Fast investment time: investment is usually quite quick since Zopa has a giant loan book. Huge number of sums can be gobbled up quickly which minimises cash drag, according to their loan book.
- Low minimum investment: you can invest with £1000 to start. It you have a small portfolio then it is easy to invest with Zopa.
- Financial Conduct Authority: the company is regulated by FCA.
- Safety: Zopa is a big company with a good history of providing loans to people. In addition, the company was able to weather the financial crisis of 2008 and come out of it unscathed.
- Diversification: the capital is invested over several loans, the company tries not to put over £10 of an investor portfolio in any one loan, therefore they abide by the ‘Prime Directive’. Of course, this is going to depend on the size of investment account along with Zopa loan book at the time of investment.
- Website: their website is user friendly and easy to understand. A lot of statistics are available to see where your money is invested.
- Auto invest: Zopa is very easy to invest with. There is hands off investing once the set up and reinvestment is enabled.
Downside of Zopa
- Lower Returns: Zopa offers lower returns compared to its competitors and the loans are still unsecured.
- No quick access account: you could have to wait for some time before you can withdraw funds early depending on demand.
- No provision fund: in case the default rates rise on the unsecured loans then it may get rid of the projected return rate quickly.
- Exit fee: Zopa charges a 1% exit fee along with any difference in interest rates or both accounts in case you want to take out your money early.
How can you contact Zopa?
If you would like to contact Zopa then you can do it by:
Post: Zopa Ltd. Cottons Centre, Tooley Street, 1st Floor, London, SE1 2QG.
Based on my own investing experience, highlighting the positives and negatives of investing with the UK’s oldest Peer to Peer lender.