Need a loan of £1,000-£25,000 with a no-hassle, competitve interest rate? If the answer is yes, then Zopa is definitely a good place for online loans.
Here is our definitive guide to getting a personal loan through the company.
- How Zopa works
- Who can borrow money and how much money can you borrow?
- What rates does Zopa offer for online loans?
- How to apply for a Zopa online loan
- How to apply for a Zopa ‘listing’ loan
The main advantage of Zopa is that you are cutting out the middleman and so you get a cheaper loan. Zopa stands for Zone of Possible Agreement, which is the area between the lowest amount one person is prepared to get for something and the most the other person is prepared to give for it. It’s basically how people negotiate a price between themselves.
“The rates on Zopa consistently undercut the best bank rates because it functions as a market,” explained Zopa spokesman Martin Campbell. “That means it is almost cheaper by definition.” The reason for the name is that, on Zopa, you are borrowing directly from savers and so interest rates are not really set in stone, but are negotiated between borrowers and lender rather than set by a bank who wants to make big profits.
Zopa can also offer lower rates as it is not a traditional bank and so has none of the associated running costs. There are no branches to maintain, so Zopa has comparatively low overheads. The money saved is passed on directly to you.
Getting a loan from Zopa also only costs a flat-fee which is incorporated into the interest rate you pay. So you won’t have to pay any upfront fees. Also, a Zopa loan is incredibly flexible – there are no early repayment charges so if you are able to pay back the loan quicker you won’t get charged.
The advantages of a loan from Zopa are especially clear now that it is harder to get a loan. Sources of cheap credit are harder to come by even for normally creditworthy applicants: for example, some banks have begun to offer loans only to their own customers.
When you apply for a loan from Zopa, it is not actually Zopa you are dealing with and it is not their money that you will borrow. Instead, the money for your loan comes from savers who register as lenders on the Zopa website. The interest that you pay on your loan is then effectively the interest paid to these Zopa-registered savers on their money. The website simply charges borrowers a one-off, flat fee for arranging the deal.
The website therefore acts not as a lender itself but as a third party in a contract between lenders and borrowers.
Zopa is not for everyone. Because the loans are unsecured, Zopa are only interested in lending money to those with a good credit rating, so if your credit cards are maxed out, you have CCJs filed against you or have a poor credit history then you won’t be approved. About half the loan applications received are rejected after Zopa’s credit and affordability checks. They will also confirm your identity and that you have a regular source of income of at least £12,000 per year.
However, if you pass all these tests, you are then free to borrow anything from £1000 to £25,000! The majority of loans are made for a period of either 36 or 60 months. It is possible, however, to pay back some loans over 12, 24 or 48 months instead. Even better, unlike at many high-street banks, there are no extra charges for early repayment, so early birds can make savings on top of the original low rate!!
The APR (the rate of interest you will pay, which is calculated to include the charge made by Zopa) you will be offered will vary depending on four factors: how much you want to borrow, how long you want to borrow for, what day it is and what ‘market’ or ‘creditworthiness’ category you fall into.
- The lower the amount you want to borrow, the higher the rate is likely to be. This is because the more you borrow the more flexibility Zopa has in matching you up with lenders, leaving you with a lower rate. Also, the one-off fee that they charge is included in the rates. You can see that the smaller the loan, the higher the rate will be as a percentage of the loan.
- The longer the period you borrow for, the fewer lenders you will be compatible with so it will be more difficult for Zopa to match you up, leaving you with a higher rate.
- It sounds crazy, but the rates available on Zopa vary on a daily basis. It is part of the ‘negotiation’ process. The rate is calculated on the basis of the demands of the lenders who put their money into the system. As new lenders join, others update their settings and borrowers take out loans, so the number of lenders and the amount of money in the system varies, meaning that the final rate available to borrowers will change on a daily basis.
- Although Zopa only offers loans to those with good credit ratings, that does not mean that all borrowers have equal status. Instead, Zopa has a 5 tier rating system for prospective borrowers: A*, A, B, C and young. A* is the highest creditworthiness with C being the lowest. The ‘young’ category is separate and includes all applicants aged 25 or under. Applicants rated in the A* category generally receive the best rates whereas applicants from the slightly more ‘risky’ categories will be offered a slightly higher APR.
Follow this link to get the Zopa loan calculator.
You can then select how much you want to borrow (between £1,000 – £25,000) and for how long you want to borrow it (1-5 years.)
It will tell you the APR and the month cost, as well as the fixed fee and the total cost (whenever comparing loans, pay close attention to the total cost – that’s the final amount you will have paid overall.)
If you’re happy with the estimate then click ‘Get a quote today.’ If you’ve not signed up you’ll then be asked to register. You’ll then be assessed to see if you’re eligible for a Zopa loan. If you are, congratulations, you can borrow between £1,000 – £25,000!