Zopa is one of those terms from negotiation theory that you come across from time to time.
It means “Zone Of Possible Agreement” – basically, it’s the area between the lowest offer they’ll accept, and the highest price you’re prepared to pay. As a property investor, you end up making lots of offers, and hope that some of them end up in the ZOPA (though most don’t.)
For the last six months or so, however, I’ve been investing with a company called zopa.com They have nothing to do with property negotiation, but use the term in a different area.
They are basically a forum where you can either register as a borrower (for loans up to a few thousand quid.) However, rather than lending their own money they match you up with lots of small lenders.
- As a borrower, you give some information about yourself, and basically say what interest you’re prepared to pay.
- As a lender, you transfer them some money, and basically say what interest rate you’re prepared to lend that money out at.
It’s a bit more complex than that – based on a borrower’s loan application, zopa allocate them into a risk group, and as a lender you can choose which risk group, or groups, you’re prepared to lend to, and set different interest rates for each. Zopa sort things out so that, rather than lending the whole amount to a single borrower, they break it up into small chunks, so you end up lending a tenner each to lots of borrowers (there are ways that you might lend more to one borrower, but the default is a tenner a pop.)
A little while ago, I thought I’d try my toe in the water, and just transferred in £250 to see how it worked. Since then, I’ve been earning 8-10% on the loans that have paid… which has been all of them!
I was expecting a few defaults -but so far I’ve made 30 loans, each of a tenner (as the interest has come in, and capital’s been partially repaid, I’ve set up my account so Zopa will re-lend it automatically.)… and none have defaulted. Clearly, if you become a lender, you might get different results, but to my mind limiting my exposure to only £10 per loan, rather than making a single bigger loan fits my investment goals better.
Oh, and I chose mainly to lend to the youth market…. so it’s win/win. I get to lend to people who pay a better rate than I could earn with other short-term sources, young people get to borrow at a lower rate than a bank would charge them, zopa.com get their fees… and the only “losers” are, I guess, the banks who otherwise might have sold a loan at 15-20% interest… I can live with them lending.
If you’re interested, as either a borrower or a lender, then zopa.com
I’ll be updating my own experiences with them 3-4 times a year, but so far, it’s been excellent.
DECLARATION OF INTEREST: They run a “recommend a friend” scheme, so that if you take out a loan, or invest a reasonable sum, I will get a commission. This does not affect the interest rate you pay as a borrower, or that you receive as a lender.