Zopa Loans: A Social Lending Network

Zopa is an online person to person lending site. The Zone of Possible Agreement is what the founders describe as the “overlap between one person’s bottom line (the lowest they are prepared to get for something) and another person’s top line (the most they are prepared to give for something).”

Zopa strives to improve the tools of financial services by allowing consumers to use the tools to help themselves and other consumers.

The banks are cut out of the process, making the cost of financial services such as loans less for borrowers and the lender will receive more in the way of interest.

Why Use Zopa
The concept of people lending and borrowing money among one another is not new. What is new with Zopa is that the traditional banks, who share your money all the time, are cut out. You put your money in a savings account and receive a small percentage rate of return but the banks turn around and share your money with other people, called borrowers, at a much higher percentage rate of return.

Zopa brings people together online to share money…“easily, safely, and in a way that’s fun and meaningful.” (Zopa.com). Zopa loans are unsecured personal loans which may be used for any purpose.

Zopa CDs (Certificate of Deposit)
When a person buys a Zopa CD they must choose at least one Zopa borrower to help. The Zopa CD holder must decide how much to help a borrower by adjusting the rate they earn on their Zopa CD.

If the Zopa CD holder wants to earn the maximum possible on their Zopa CD, the borrower will only have a minimal amount of help. However, the bigger their Zopa CD, and the lower the rate the Zopa CD holder chooses to receive, the more help they give to the borrower.

The help a borrower receives comes in the form of a reduction in the net monthly loan payment that a borrower needs to pay. It’s not actual cash but it acts that way. Borrowers may receive help from multiple Zopa CD holders so it is possible a borrower may have their entire loan paid off, if they receive sufficient help from other Zopa CD holders.

Buyers of a Zopa CD choose the borrower or borrowers they want to help. The borrowers create profiles on why they need a loan and what the proceeds will be used for. Even if these borrowers don’t pay their loans back, you’ll still get your money back, with interest.

Qualifying for a Zopa Loan
You must become a member of Zopa and be 18 years or older, a U.S. citizen or permanent resident, and meet the following underwriting requirements: (a) A minimum credit score (FICO) of 640; (b) Income of $2,000 per month; and (c) A few years of credit history. You can borrow up to $25,000 and the loan terms are five years.

Zopa Interest Rates
The interest rate is fixed for the life of the loan and does not change in the event of late payment or for any other reason. Zopa interest rates are highly competitive and often lower than most banks. Because they operate online they do not have the high overhead costs that a big bank would. The costs reduction is passed on to the borrowers in the form of lower rates.

Fees and Costs
Zopa makes money primarily by servicing the Zopa Loans and Zopa CD’s for their partner credit unions. Consumers pay no fees to transact or on a recurring basis as long as all their payment processing is electronic, and as long as they are current on all loan payments. There is no fee from Zopa to apply or borrow. Borrowers who do not choose electronic payment processing are subject to a per payment processing fee of $15.00 for monthly payments handled manually.

There is also a $15.00 late fee for payments not paid on time. Zopa is an online person to person lending site. The term Zopa stands for Zone of Possible Agreement. The “Zone of Possitble Agreement” is a zone which Zopa’s founders describe as the “overlap between one person’s bottom line (the lowest they are prepared to get for something) and another person’s top line (the most they are prepared to give for something).”