Peer-to-peer lending: How Zopa works

What is Zopa?

Zopa is the UK’s leading peer-to-peer lending service. We reward savers and borrowers who are good with their money by providing lower rate loans and higher interest on savings.

Since Zopa was founded in 2005 we’ve helped savers lend more than £517 million in peer-to-peer loans and have been voted ‘Most Trusted Personal Loan Provider’ in the Moneywise Customer Awards for the past three years.

Zopa was the founding member of the Peer-to-Peer Finance Association and is supervised by the OFT. Zopa will be regulated by the FCA in 2014.

How does peer-to-peer lending work?

Zopa’s peer-to-peer lending bypasses banks and their high charges, to deliver better rates directly to both borrowers and savers.

Savers can lend their money safely and easily to borrowers and earn high interest on their savings. They are protected from risk by the Zopa Safeguard, which is designed to cover a saver if a borrower is unable to repay.

Borrowers looking for a low rate loan to fund a purchase such as a car or home improvements can get a better rate than they can from the banks. Zopa borrowers have good credit ratings and our expert loans team helps them to make sure they can afford their loan.

Zopa offers better rates to savers and borrowers, because peer-to-peer lending is more efficient than the traditional banking model. Banks have large overheads, with thousands of employees to pay and hundreds of branches to maintain. So they have to take large margins on the money that passes through them and this means worse rates on loans and savings.

Peer-to-peer lending is also known as social lending and lend-to-save, because it works by individual savers and borrowers coming together to get better rates. As well as getting a great financial deal, social lending helps you to cut out big banks. So you can help fellow borrowers and savers while knowing you are being smart with your money.

How does Zopa work?

Zopa makes money by charging lenders and borrowers a low, transparent fee. There are no hidden charges or sneaky clauses so our lenders and borrowers get a good deal. Lenders pay a 1% annual lender fee on the amount they lend to borrowers. Borrowers pay the borrowing fee only when their loan application is approved. The borrowing fee is added to the loan amount and always included in all our APR quotations.

Zopa is not part of any loan contract and only enables the loan contract to be agreed. The contract is legally binding between the lenders and borrowers. This means the loan contract would still stand in the unlikely event that Zopa ceases to exist. We also ensure that the fees related to those contracts will cover the costs of administering them in that case, e.g. collecting borrower repayments and crediting lender accounts.

Zopa is in this for the long haul. Peer-to-peer isn’t just our business, it’s our mission. We’re committed to giving people better interest rates and better service than they can get from the banks. We believe that people who are good with their money should be properly rewarded, and that’s how Zopa works.

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