Zopa - eBay for loans

March 7, 2005 8:07 AM

Zopaput people who want to borrow money in touch with people who want to lend them money - it's eBay, but for loans.
posted by Orange Goblin (22 comments total)

So where's the link to bustyourkneecaps.com, or is that coming soon?
posted by jonmc at 8:12 AM on March 7, 2005

seems like a pretty bad idea. Why would you get a loan from here, rather then a bank?
posted by delmoi at 8:12 AM on March 7, 2005

also, what's up with the fixed width design?
posted by delmoi at 8:13 AM on March 7, 2005

delmoi, some people have difficulty getting loans from banks.

/obvious
posted by jonmc at 8:13 AM on March 7, 2005

What a great concept... connecting borrowers and lenders without any of those annoying bank regulations that protect both sides. What could go wrong?
posted by blue mustard at 8:20 AM on March 7, 2005

money money money money! Wahoo!
I'm gonna go borrow $100,000 right now!
C-ya suckaz!
posted by Edible Energy at 8:23 AM on March 7, 2005

jonmc: Well, I think they would have trouble getting loans from this site as well, since lenders can see the user’s credit rating.

Actually I had thought that such a system could be interesting (allowing individuals to loan money as an investment) but I figured that it would require some government action to setup. Actually, it appears that this is a UK site, and that it was founded by people with (apparently) experience in banking.
posted by delmoi at 8:23 AM on March 7, 2005

wow.... really bad idea this. Surely if people can't even get a loan through a bank or one of those high street loan shops then they really shouldn't be getting one in the first place.
posted by twistedonion at 8:24 AM on March 7, 2005

Is it a coincidence that 'zopa' translates to 'ass' in Russian?
posted by volk at 8:32 AM on March 7, 2005

jonmc: Well, I think they would have trouble getting loans from this site as well, since lenders can see the user’s credit rating.

Yes, but (correct me if I'm wrong) independent moneylenders aren't bound by as many regulations as banks, so perhaps they'd be more inclined to lend money to risky prospects, if they could charge exorbitant interest.
posted by jonmc at 8:35 AM on March 7, 2005

Some of the details are interesting:

Here’s the really clever bit. An individual lender doesn't lend to an individual borrower because that’s too risky. Instead a lender lends their money across at least fifty Zopa borrowers, and similarly a borrower borrows from a group of Zopa lenders. So the risk is well and truly spread.

All lenders and borrowers enter into a legally binding contract with their respective borrowers and lenders. Zopa manages the collection of monthly repayments and if any of that money is not paid on time, uses exactly the same recovery processes that the high street banks use.

The distribution of risk is interesting. It would be interesting to see see what the interest rates are — is my money better off here than in a savings account? In the stock market? In the currency market?
posted by IshmaelGraves at 8:50 AM on March 7, 2005

"Here’s the really clever bit. An individual lender doesn't lend to an individual borrower because that’s too risky. Instead a lender lends their money across at least fifty Zopa borrowers, and similarly a borrower borrows from a group of Zopa lenders. So the risk is well and truly spread."

Something about this reeks of cleverly convoluted MLM scamming. But maybe not, I dunno.

"How does Zopa make money?
Zopa earns money by charging borrowers an exchange fee of 1% and if borrowers take out repayment protection insurance on their loan, receives commission from its insurance provider. Zopa doesn't charge lenders a bean."

What? Did you just fold space right there? WTF was that?

I'm dubious. It sounds wrong, but I might be able to be convinced.

It sounds like they're saying "Let's rub money together and make more money" which I'm pretty sure I've seen happen at least once before in person with real paper cash in the hands of someone once, which is a whole different story and tangent away from here.

But it generally sounds like it's going to violate any known theories of economics I've ever heard of from any armchair, not to mention transposed theories of physics and thermodymanics.

On preview: Damn it! "Here's the clever bit. You take an ebony bath... except it's conical..."
posted by loquacious at 8:53 AM on March 7, 2005

loquacious, I'm not sure what you see as improbable about their business model. They charge a commission in exchange for facilitating monetary transactiongs. This is a time-honored way of making, in fact, quite a bit of money for such firms as, say, J. P. Morgan and Merrill-Lynch (not to mention eBay and PayPal). Except instead of buying part of a corporation you are buying part of a loan. It's probably riskier than a bank account but less risky than tech stocks. I'm pretty impressed by the cleverness of the idea myself and wish I'd thought of it. If they attract any volume of business at all that 1% could be quite lucrative.

And I don't know what similarities you see to MLM. There's no robbing-Peter-to-pay-Paul that I can ascertain; you lend money, you get it back with a little interest. Spreading the risk over a variety of borrowers seems more akin to investing in a mutual fund than any sort of pyramid scheme.
posted by IshmaelGraves at 9:14 AM on March 7, 2005

If you look up home deeds from the 19th century (I have), you see a lot of mortgages between individuals. You don't see that so much anymore -- although my wife's grandfather did it in Louisiana about 10 years ago.

The interest rates in these individual loans were so low that I have to think that they were doing it for either somewhat altruistic reasons or there was some tax incentive or something.
posted by Cassford at 9:21 AM on March 7, 2005

I posted my last with hesitation (in regards to the snarkiness) and a very, very dry dusting of optimism and humor that probably won't shine through.

I like the idea, a lot. It could be an amazing sort of P2P way to transfer resources around the world voluntarily and altruistically in a risk-mitigated setting, while still increasing one's own nest egg.
posted by loquacious at 9:40 AM on March 7, 2005

This reminds me of (but of course is slightly different from) asset-backed securities, where you will loan money to a bank and they loan the money out to somebody else. The bank's collateral for the security is the loan--if the bank folds, you now own the loan to Party X. Otherwise, the bank still has to pay you, even if Party X defaults.
posted by grouse at 10:13 AM on March 7, 2005

You must be a UK resident to lend though...

Otherwise, this is awesome!
posted by crazy finger at 10:15 AM on March 7, 2005

Interesting concept. This is basically how banks make all their money. You could get returns as high as 20% per year doing this. Don't know about US regulations though.
posted by garycarlson at 11:38 AM on March 7, 2005

From the site:

Equifax also give us your credit rating which we use to determine which market someone can borrow from. If yours is average or low, we won't be able to let you borrow at the moment, just lend.

and

At the moment we only have markets for borrowers that we believe will be a low risk for lenders. We rely on credit ratings to provide us with a big steer on this, so people with a low rating, even if they are a good risk, cannot use Zopa to borrow for the time being.
posted by WestCoaster at 12:50 PM on March 7, 2005

Thanks for the link! I got a sweet deal from a Nigerian princess. I'm just sending a little cash to unlock the account and I'm all set!
posted by Pretty_Generic at 1:06 PM on March 7, 2005

Apparently this is set up by Richard Duvall – who created the UK savings bank Egg - which has quite cool advertising.

I think this is a clever idea and hope it works.
posted by laukf at 1:52 PM on March 7, 2005

Highly obscure HHGG references --> good thread! Thanks loquacious!

(puts tongue back in cheek.)
posted by louigi at 3:02 PM on March 7, 2005