Lending at Zopa
edit - break down into logical sections and then move existing blurbs into them (chancer)
How to become a lender
Transferring money to Zopa
Lending markets
International lending and borrowing
At the moment, UK citizens can only lend to and borrow from other UK citizens. And, US citizens can only lend to and borrow from other US citizens. This is due to a complex international regulatory environment.
Bad debts
What are the bad debt rates?
Based on data provided by Equifax about our expected borrowers, and their many years of professional experience, our risk team has made their best estimates of the levels of bad debt expected in each market. That information is used to calculate the return after bad debt that is displayed to you on the lending screen.
Despite our risk team's efforts, it is important to bear in mind that the actual level of bad debt you experience may vary from their best estimate.
|MarketBest Estimate|
| Market A* 12 mths | 0.5% |
| Market A* 24 mths | 0.5% |
| Market A* 36 mths | 0.5% |
| Market A 12 mths | 1.4% |
| Market A 24 mths | 1.1% |
| Market A 36 mths | 0.9% |
| Market A 48 mths | 0.9% |
| Market A 60 mths | 0.8% |
| Market B 12 mths | 2.8% |
| Market B 24 mths | 2.4% |
| Market B 36 mths | 2.0% |
| Market B 48 mths | 1.7% |
| Market B 60 mths | 1.6% |
| Market C 12 mths | 8.5% |
| Market C 24 mths | 7.3% |
| Market C 36 mths | 5.8% |
| Market C 48 mths | 5.1% |
| Market C 60 mths | 4.7% |
One final consideration is that the interest rate you set could affect the bad debt you experience. By setting very high rates, it is more likely that only bad borrowers will accept loans offered at those rates, and in that case the level of bad debt could be considerably higher than the above predictions.
The lending screens
Lending summary
see ScreenLendingSummary
Current lending offers
see ScreenCurrentLendingOffers
Offers to borrowers
see ScreenOffersToBorrowers
Zopa borrowers
see ScreenZopaBorrowers
Other
How is the lending order determined, and what affects it?
The order in which lenders are matched with borrower is determined firstly by the rate lenders are offering (From low to high) and the time the offer was either made or changed (from earlier to later.)
Changing an offer means adding or removing a market from an offer, or changing the rate of any market within an offer. Doing either of these things will change the ordering time of that offer - for every market it's available in.
However, adding more money to an offer DOES NOT affect the ordering time. So you can use the lend more function and not worry about affecting your place in the lending queue.
How much can I lend at Zopa?
You can lend anything from £10 upwards, but if you want to have more than £25,000 lent out to Zopa borrowers at any one time, or if you're lending in the course of a business, you need to first hold a Consumer Credit Licence. We can help you apply for this licence - to find out how, drop an email to powerlenders@zopa.com with your contact details, and we'll get in touch to talk you through everything.
You can lend your money all in one offer or split it up into a number of different offers in different markets at different rates. You can make offers in amounts of £10 to each borrower, although the highest number of contracts any one borrower can have with a single lender as a result of his or her successful bids is 20.
The minimum total amount you can offer is £10.
Who's eligible to lend at Zopa?
You need to be an individual over the age of 18, who's resident in the UK and who has a UK current account. If you wish to lend over £25,000 you need a Consumer Credit Licence (see previous answer).
Could I lose all the money I lend at Zopa?
You're actually very unlikely to lose any of your loan principle, let alone all of it.
To safeguard your money, all Zopa borrowers are credit-checked and risk-assessed, and your maximum exposure to a single borrower can be limited to £10. So if you lend more than £500, your money will be spread across at least 50 borrowers.
We use the same risk evaluation techniques as the high street banks so we can predict what proportion of your borrowers may fail to pay you back on time. You can use the expected bad debt rates to help you work out the interest rate you want to lend at.
Even when one of your borrowers does default, if after repeated attempts the collections agency cannot get any further payments from them, it will notify you and you can sell your debt to a collections agency.
How do I get my money into the Zopa Members' Lending Account?
edit - needs info on debit card method (Chancer)
There are two ways to get your money into Zopa - by direct bank transfer and using PayPal:
i) by direct funds transfer
In order to lend, you will need to send money to the Zopa Members' Lending Account using a bank transfer (also called a BACS transfer). This is available from your telephone or online banking service and should be free. The money will usually take 3 working days to transfer depending on when you put the request in to your bank.
You should use the following information when you set up the transfer.
Bank Name: Royal Bank of Scotland
Account Name: Zopa Limited, Zopa Lenders Client Account.
Account Number: 10212420
Sort Code: 16-00-30
Reference: Your Zopa username
Your username is the username that you chose when you joined Zopa. If you've forgotten this, you can look in My Details to remind yourself. It is very important that you include this reference when you request the transfer from your bank, or your money may not be allocated correctly to your Zopa holding account - please contact your bank if it is not clear how to add this information.
We will e-mail you to let you know that your money has arrived and you can then sign in to Zopa, and make loan offers to borrowers in the market of your choice.
ii) Using PayPal
Using PayPal can be the fastest way to transfer your money into Zopa. Please note you can only use the existing PayPal balance or a transfer from your UK bank account via PayPal. You can't use your credit card or debit card to fund PayPal payments to Zopa.
Simply sign-in, go to "Lend Now", click "Transfer" and follow the on-screen instructions. We will email you to let you know your money has arrived - usually the same day.
How do I know I am lending to real people at Zopa?
You’ll be able to see the usernames of Zopa members on the site whenever they lend or borrow.
You'll also see the usernames of the people you're lending to in My Zopa. You will not be shown their full name (unless they've chosen a username that matches their real name) or their address, but you will see generic details. For example:
Borrower: Pushkin
Title: Mrs
Age: 45
Location: Sheffield
Loan Purpose: Home improvements
You'll also be able to see how much they borrowed, at what rate & term, what for and track their repayments.
Borrowers are also able to send you a message. Typically borrowers use this to explain a bit more what they want the loan for or just to say "thanks". For example, Pushkin left this message: "I am waiting for the pay out from the Halifax for the mis-selling of an endowment complaint that has been upheld. I want to do some work on my house before Christmas".
Can I choose who I lend to?
You can choose the rate you want and the risk category you want, but not (yet) which individual borrower.
Your loan offer is specific about all the key terms that, when accepted by a borrower whose bid matches those terms, are necessary to produce £10 loan contracts with that specific borrower.
How is my lending offer matched to borrowers?
At Zopa you lend into a particular market. Markets are defined by the credit rating of borrowers (Market A, Market B etc.), and the term of the loan (12 months, 24 months etc.) When you place money in a Zopa market, your money is lent in separate contracts of £10 each to at least 50 borrowers. Your offers, together with those of all the other lenders in a market are ranked, firstly by the rate lenders have set (lowest to highest) and secondly by the time the offer was placed in the market (earliest to latest).
You can see your ranking in the loan offer screen: click on mkt at the end of the table on the right hand side.
When a borrower makes a borrowing request in a market, the money is taken from each lender in rank order until the full amount has been matched. The interest rate that the borrower is charged for all the loan contracts is the average rate at which the lenders are supplying the money, so each lender gets the rate they asked for.
An example from the discussion board, posted by ThriftyUncle
Example:
Hewey, Dewey and Louie all offer £1000 on the same market (with no offers from anyone else!).
Hewey lends at 5.5%, £100 max per contract - lending offer made in March 2006
Dewey lends at 5.0%, £20 max per contract - lending offer made in June 2006
Louie lends at 5.5%, £50 max per contract - lending offer made in January 2006.
I borrow £100 from this market. I get:
£20 from Dewey (cheapest offer);
£50 from Louie (oldest offer from that rate);
the remainder, £30, from Hewey, although he could have offered more.
Does Zopa guarantee any level of returns?
No. For us to guarantee a return we would need to significantly increase the fees we charge. Zopa is not a bank, it’s an exchange. If you do not feel comfortable with this, you should reconsider lending at Zopa.
How should I compare the rates of return?
It is important to remember that the rate you choose is an Annual Equivalent Rate (AER), and that you only earn this return on money that is currently lent out. As you receive back some of your lending every month, you will need to re-lend this money to get the full amount of interest.
For example, if you lent £1,000 for 1 year at 6% (and assume everyone pays back), your total interest would be £31.92, not £60. Your borrowers do not borrow the full £1,000 for one year, so do not pay interest on the entire amount for that period. In this example, after 6 months you would have received back over £500 which you could then re-lend.
How do I find out how my lending is performing?
You can see this, and other useful information, by logging into My Zopa, and clicking on My Lending.
In addition, we will send you a quarterly report that details exactly how much you have received back for each of your loans. You will be able to use this to see whether your loan performance matches your expectations.
How does Zopa deal with bad debts?
If one of your borrowers defaults, Credit Resource Solutions Ltd, a collections agency, will undertake to recover any money outstanding. Should it be unable to do so after 120 days, you agree to sell the debt to a collections agency for a price that will be agreed at the time, but which will not be less than 10% of the amount then outstanding. The agency will pay a fixed percentage of the outstanding amount to us which we will pass back to you. We will not allow that borrower to borrow again and will suspend their membership. Furthermore, we will pass their details back to our credit referencing agency which may affect their ability to get credit in the future.
If a borrower defaults on my loan, can I take things into my own hands?
You already have. By agreeing to the Zopa Principles you have asked for Credit Resource Solutions Ltd, a collection agency, to handle repayment collections on your behalf.
Can I leave negative feedback if someone defaults on my loan?
No. However, a defaulter will not be allowed to borrow again using Zopa and their membership will be suspended.
What happens to money I’ve lent if I die?
It will be repaid back to your estate over the lending term in the same way that it would have been paid back to you.
Can I get insurance against bad debt at Zopa?
No. We are currently looking at offering lenders insurance if there is a demand for it, but this will not be available at launch. The premium for any insurance of this sort would substantially erode the potential rate benefit available from lending at Zopa.
Do I need any licenses to lend?
You only need a licence to lend at Zopa if you want to have more than £25,000 lent out to Zopa borrowers at any one time or if you're lending in the course of a business.
If neither of these apply to you, then you don't need a licence.
If either of them do, though, you will need to apply for and get a Consumer Credit Licence (unless you've got one already). We can help you do this - simply drop an email to powerlenders@zopa.com with your contact details and we'll get in touch to talk you through everything.
Can I spread my lending offer?
Yes. Spreading your lending offers enables you to diversify your risk and create a mixed portfolio of borrowers. For example, if you have £5000 to lend, and you lend it all to borrowers in a single market, you will have 50 borrowers, each borrowing £100 in 10 contracts of £10. However, if you lent £2000 to borrowers in one market £3000 to borrowers in another, you would have 50 borrowers in each market, so 100 in total.
To lend to borrowers in multiple markets, simply choose to lend less than the total available in your Zopa holding account. Once you have completed your offer to borrowers in the first market, click "Lend now" a second time, and repeat the process. You can do this as many times as you want, providing you have funds available in your Zopa holding account, and don’t lend more than £25,000 to other people in total.
How do I choose a term?
The term is the length of time in months that your borrowers initially commit to borrow from you for. However, because borrowers can repay their loans at any time and a small number may never fully repay, it is not necessarily the length of time it will take before you receive all your repayments.
In choosing a term, you should be confident that you won't need access to your money for that length of time, but remember that every month you will receive a proportion of your loan amount back, plus interest.
Which market should I choose?
Zopa borrowers borrow from the market that is appropriate to their credit rating. Market A contains the most creditworthy borrowers - those who are most likely to fully repay the total amount repayable. As a consequence, they are the borrowers who would expect to borrow at the lowest rates. By lending to Market B and setting higher rates, you should be able to get a higher return but there is a higher risk that some borrowers may not fully repay the total amount repayable
How do I know what lending rate to pick?
When picking the rate you want to offer money at, you need to weigh up several factors.
The rate you choose is the rate that your money will be lent out at.
If you choose a rate that is equal to or below that of other lenders in the market, your money will get lent out more quickly, but obviously you may not get the best returns you could.
If you choose a rate that is equal to or above the highest rate in the market, your money may move much more slowly, if at all. Additionally, if there are only a few other lenders, your high price could mean that no one can lend out any money as your rate will determine what all prospective borrowers are offered.
The rate you choose should take into account the return you'd like after bad debt is taken into account. We'll show you this for the market you've chosen.
When picking a rate you might also want to consider it from a borrowers perspective as well as your own. How well does it compare to rates available from high street banks or specialist loan providers for example.
One final consideration is that the interest rate you set could affect the bad debt you experience. By setting very high rates, it is more likely that only bad borrowers will accept loans offered at those rates, and in that case the level of bad debt could be considerably higher than the above predictions.
It is important to remember that the rate you choose is an Annual Equivalent Rate (AER), and that you only earn this return on money that is currently lent out. As you receive back some of your lending every month, you will need to re-lend this money to get the full amount of interest.
For example, if you lent £1,000 for 1 year at 6% (and assume everyone pays back), your total interest would be £31.92, not £60. Your borrowers do not borrow the full £1,000 for one year, so do not pay interest on the entire amount for that period. In this example, after 6 months you would have received back over £500 which you could then re-lend.
How is the monthly return calculated?
The monthly return shown is an estimate based on the expected rate after bad debt for your lending, the amount of your loan offer and the term you are lending for. It assumes that all your lending receives interest at the rate after bad debt, and that your borrowers do not repay early or late.
The actual amount of money you finally receive will depend on the various rates your borrowers may have borrowed at (see "How is my lending offer matched to borrowers?"), the number of your borrowers who have repaid early and whether any of them are late in making their repayments.
It is important to remember that this rate is an Annual Equivalent Rate (AER),and that you only earn this return on money that is currently lent out. As you receive back some of your lending every month, you will need to re-lend this money to get the full amount of interest.
For example, if you lent £1,000 for 1 year at 6% (and assume everyone pays back), your total interest would be £31.92, not £60. Your borrowers do not borrow the full £1,000 for one year, so do not pay interest on the entire amount for that period. In this example, after 6 months you would have received back over £500 which you could then re-lend.
Why do the amounts I get back each month vary slightly?
The amounts vary due to rounding of decimal places.
If, for example, you were to lend £2000 over 36 months at 9%, you would only be lending £40 to each borrower under 4 £10 loan contracts. The monthly repayment per contract would be £0.311365
The borrower cannot pay this exact amount so it is rounded to £0.31. However this is an underpayment of £0.001365. If we charged a borrower that for each of their lenders they would end up paying too little – up to 0.5% on their loan rate.
Some months therefore the repayment is rounded up (in this case to £0.32) to re-adjust the total amount the borrower has to repay.
As a lender you will see your monthly repayments vary by up to 50p.
Can I get the money I’ve lent repaid early?
No. You cannot get any money back early once it’s lent. You should ensure before you offer money to borrowers on Zopa that you can afford to do so over the time you’re offering it for.
How do I know when to expect my repayments to be made?
Depending on what date the loan was taken out and what day of the month the payment is due it can take upto 6 weeks for the first payment to be due.
For example 2 people take a loan out from you on the 10th of July.
Mr A has a pay day of 1st
Mr B has a pay day of 20th.
The first payment is usually due on the payday after the borrower has had the money for one month.
Mr B will be due to make his first payment on the 20th August as this is the first payday after his first month is up.
Mr A will not be due to make his first payment on the 1st September as this is the first payday after his first month is up.
The length of time to the first pay day will be reflected in the interest charged to the borrower. You will notice on contracts where you have had to wait 6 weeks for the first payment that you usually get an extra penny interest with the first payment.
Also bear in mind that the payday is the day the payment leaves the borrowers bank and it can take upto 3 working days for this to appear in your account.
Comments (1)
neilajh said
at 3:39 am on Dec 30, 2007
I think this page is just toooo much. There's too much to read and it's too dry - I realise it's meant to be the FAQ but I don't think this is the right place for it. We need a separate place for lending FAQ's I reckon.
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