Oct 6, 2011 by


Want a low cost loan? Or feel the need to diversify your investments? Zopa could be the answer.

Zopa, or “zone of possible agreement”, has been described as ‘the eBay of personal finance’.

It’s a UK social lending community where real people lend money to other real people, cutting out the banks.

Lending money to strangers online? Sounds risky! That’s why they’re the target of this review where I evaluate the pros and cons of this service for both lenders and borrowers.



Zopa Review – Is It Legit?

Zopa is 100% legit and has been tried and tested over several years.

Zopa was launched in March 2005 and has been running strong. It has received credit licenses from the Office of Fair Trading and is a member of CIFAS – the UK’s leading anti-fraud association.


How Does Zopa Work For Lenders?

Got some extra cash and horrified by the puny rate of interest offered by your bank? Or is it time to add in a new asset class to your investment portfolio? Here are the facts behind Zopa for lenders:

  •  When you lend money, it is split between many borrowers to spread risk.

When you create a lending offer, Zopa automatically divides the total you are offering by 50. For example if you’re offering £500 this will be lent out in £10 chunks.

  • Over the last year, average interest earned on money lent out was 6.8%.

The specific rate that you lend out at will depend on the tier that you lend to. For example, A* borrowers or C rated borrowers. More on this in the next point.

  • You can lend money to borrowers with different risk categories (A*, A, B and C and each of these have their own estimated bad debt rating).

The riskier the category, the higher the interest you’ll be paid.

  • Bad debt levels are low. Here are the Zopa best estimates:
A* Market 36 mths 0.5%
A* Market 60 mths 0.4%
A Market 36 mths 1.0%
A Market 60 mths 0.8%
B Market 36 mths 2.9%
B Market 60 mths 2.3%
C Market 36 mths 5.2%
C Market 60 mths 4.2%
Young Market 36 mths 5.0%
Young Market 60 mths 3.1%


Reassuringly, for the last few years, the actual bad debt has been below what Zopa estimated. Zopa are also known to only allow those with a squeaky clean credit history on the platform, protecting lenders.

To summarize, Zopa is a nice way to generate some extra interest for money you have uninvested. If you’re thinking of becoming a lender, these points should reassure you that they are legit and take all the necessary precautions and safety measures:

  • Everyone who wants to borrow is identity-checked, credit-checked and risk-assessed
  • To diversify risk, your money is spread across a number of borrowers
  • A collections agency chases any missed payments on your behalf (exactly the same process used by banks)
  • You’re protected against fraud
  • Zopa tell you how much bad debt you should expect, so you can take that into account
  • Until your money gets lent out, it is held in a segregated RBS account. This means it does not form part of Zopa’s assets and is 100% safe in any eventuality

Sign up as a lender here.


How Does Zopa Work For Borrowers?

Zopa is becoming a popular choice for borrowers wanting to cut out the fat-cat bankers for the following reasons:

  • Attractive borrowing rates

The credit crunch led to increasing loan rates almost everywhere and that’s one of the factors that has made Zopa so attractive.  The typical APR on a £5000 loan for 36 months is an awesome 7.8%. So you’ll be paying back £5,604.40 which works out to £155.68 per month.

  • You can repay your loan early, or in lump sums, with no extra charge

Unlike typical banks, you can repay early, or in lump sums which allows you to get out of debt quicker and save lots of money as the interest is calculated on a daily basis.

  • You can pick your own repayment date e.g. payday!

When you apply for a loan with Zopa, you’ll be asked which day of the month you’d like to make your repayments on, giving you a little more of that precious control and freedom.

Sign up as a borrower here.


What Are Zopa’s Fees?

Zopa clearly spell out their competitive fees.

  • Lenders pay an annual equivalent 1% fee on the amount they lend to borrowers

If a borrower defaults on part of their loan, the lender is not charged a fee for that part. Similarly, if a borrower repays early, the lender pays no fee on the portion of the loan that has been repaid.

  • Borrowers are charged an arrangement fee of £100 – that’s it, no other hidden fees whatsoever. This fee is included in the APR quotations Zopa provide and is added to the total amount you borrow, so you won’t need to make any up front payments. Applying for a loan is free.


The Verdict:

Zopa is a great way for investors to make some extra money and for borrowers to get a better deal.

The company is well established, trusted and has received licenses from the relevant government bodies. Therefore, it scores high on the legitimacy chart:

Zopa Review

You can visit Zopa here.

Have you had experience with Zopa or do you have thoughts on the service as a whole? Leave your comments below.

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1 Comment

  1. Sam

    Wow what an innovative service! Will try this out as a lender. No more boring 3% interest rate 🙂

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