Peer to peer lending sites are increasingly becoming a popular choice for borrowers. Zopa was the world’s first peer to peer lending site, open to U.K. residents seeking a low cost method of taking a loan in a clear and transparent way. The site has been in operation since 2005.
Zopa allows borrowers to take loans from a group of peer investors, cutting out the middleman of banks or brokers. Borrowers do require a good credit history of a minimum three years standing, and interest rates assigned to loans will be dependent upon credit. Those seeking a loan can be confident that Zopa is licensed by the Office of Fair Trading but it is not subject to FSA regulations.
The key benefit of using Zopa as opposed to a bank loan is the transparency of costs. A flat fee of £130 is charged on each loan issued but after that there are no hidden charges or early repayment fees to take into consideration. Loans range from £1000 to £15,000, and borrowers may have several loans running concurrently providing the total does not exceed £15,000.
Repayment terms can vary but are typically 36 or 60 months. However borrowers can elect to make additional payments or pay the loans off early thus significantly reducing the total amount of interest to be repaid.
Applicants will fit into one of five credit categories: A*, A, B, C or Young Market. The first four categories are applicable to borrowers aged 26 and over, whilst the Young Market is reserved for borrowers aged between 20 and 25. Applicants can obtain personalize loan quotations without the enquiry registering on their credit report. Membership of Zopa is free and members can earn £50 for referring successful borrowers.
Typical APR’s on Zopa loans are 6.5% over 36 months, and 9% over 60 months, though personal credit standing will determine the actual rate. The rate increases on paper when the £130 fee is expressed as part of the APR, making the 6.5% APR an effective 8.5%.
All borrowers must commit to making monthly payments on time via direct debit. Zopa has the right to demand full repayment of the loan if two consecutive monthly payments are made late. In the event that the loan conditions are not met and Zopa has to pass the loan to a collections agency then an administration fee of 22.5% of the amount overdue is applied. Similarly if a borrower skips leaving no forwarding address then a trace charge of £25 is levied.
Peer to peer lending has proven to be an excellent way of acquiring low cost loans without the need to approach banks or other traditional lenders. It is definitely worth considering for those seeking a loan as they comparison shop between lenders.