Zopa: Social Lending

A new(-ish) organization based in the UK called Zopa is allowing people to borrow and lend money from each other, entirely sidestepping banks.  Because banks have huge overheads and are fundamentally in business to make money on your money, cutting them out all together allows social lending to give both lenders and borrowers better rates by eliminating the middle man and placing all transactions in an open marketplace, rather than behind closed doors.

The transparent system allows for both the lenders to see where their money is going and for borrowers to see where their money is coming from. 

To ensure all their transactions are reliable, they have implemented a fairly simple and logical system:

• We look at the credit scores of people looking to borrow and work out whether they’re an A*-, A-, B- or C-rated borrower. If they’re none of these, then Zopa’s not for them.
   
• Lenders make lending offers – ‘I’d like to lend this much to A-rated borrowers for this long and at this rate.’
   
• Borrowers size up the rates offered to them, and snap up the ones they like the look of. If they don’t like the rates today, they can come back tomorrow to see if things have changed.
   
• To reduce any risk, Zopa lenders only lend small chunks to individual borrowers. A lender lending £500 or more would have their money spread across at least 50 borrowers.

The average return on all money lent to date is 6.75% pa, and some lenders are earning up to 14% pa (figures before tax, but after bad debt and fee).

Zopa