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Zopa Loans Redefines Personal Loans Using Social Finance

Oct. 27, 2008 — Unfortunately, Zopa Loans—a UK company—has stopped lending operations in the U.S. due to the tightening credit market. While they will continue to service existing loans, new loan inquiries are being directed to U.S.A. Federal Credit Union. I’ll post more information here as it becomes available. Borrowers seeking personal loans with FICO scores of at least 670 can try peer-to-peer lender Lending Club. The following is my original summary of Zopa Loans while they were still operating:

Zopa Loans brings an interesting new twist to social lending and borrowing. Zopa Loans provides low interest personal loans backed by the nation’s credit unions and provides investors with the opportunity to purchase guaranteed certificates of deposit of up to 3.75% APY that will reduce the interest rates Zopa borrowers pay. My first impression? This is very cool.

Zopa for borrowers

Zopa provides unsecured personal loans of up to $25,000 at interest rates between 8.99% and 16.99% for five years. To qualify, borrowers just need a credit score of at least 640 (check your credit report free) and a steady income. The only fee associated with Zopa is a $15 late fee if you miss a payment. Compare that to a $150 loan origination fee at peer-to-peer lender Prosper and credit card late fees than can be $29 or even $39!

For those that qualify, Zopa Loans will likely provide a lower interest rate than a traditional personal loan or credit card. And, unlike credit cards, personal loan interest rates are fixed.

In my opinion, if you must borrow money for a big expense like a vacation, a wedding, or debt consolidation, personal loans are a better option than credit cards. That’s because you pay off a personal loan consistently over time whereas credit cards trap you in a cycle in which minimum payments and the ability to put new charges on the card can make it impossible to get out of debt.

Learn more about Zopa personal loans now.

Zopa for investors

Zopa provides investors with a safe way to help borrowers by reducing the interest rate they pay on their loan. Zopa’s hope is that friends and family members of borrowers with money to save will buy Zopa CDs that are insured up to $100,000 per borrower. Investors can earn up to 3.75% APY on the CD, but they can also choose a lower interest rate to help associated borrowers.

For example, if Joe takes a personal loan at 12% interest and Joe’s father gets a CD at 1.75% and pledges to help with Joe’s loan, Joe’s interest rate drops to 10%. If Joe’s mom also gets a CD at 1.75% for Joe, his interest rate drops to 8%. With enough people buying CDs, friends and family could essentially provide somebody with an interest-free loan, all the while keeping money in an insured account.

Although investors won’t earn an earth-shattering return on their cash, they can keep the money in the account with interest rates that are at least as good as most brick-and-mortar bank savings accounts.

Have you tried Zopa Loans as either a borrower or investor? What do you think?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

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