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The Next Step in Cyber Banking
Got some extra cash lying around? Or maybe you need a bit of cash to make that next big purchase. Either way, there's no need to get the bank involved. Following the example of Internet-based auction houses such as eBay, a British company called Zopa has launched the world's first-ever online lending and borrowing exchange. Those with money to lend can enter the date by when they would like their money paid back, and the interest rate they would like to receive. Those who need to borrow money can expect lower fees -- there are virtually no middlemen involved -- and, as the Web site suggests, allows you to avoid profit-hungry banks. In order to build in a safety net for the lenders, the Web site spreads out money invested to at least 50 different borrowers and limit exposure to any single borrower to $385. A whole new meaning to the idea of online banking."
More info from Zopa website:
Zopa is a place where creditworthy people who want to borrow money can get together with people who are happy to lend it to them. And because there's no middleman - the borrower just pays a 1% exchange fee to Zopa up front - both get a great deal.
Lenders can choose what rate to lend at and, by looking at the markets, decide what sort of people to lend to and when.
Borrowers can choose to take a rate offered or to wait and see whether the rates drop. Both avoid paying needless chunks of commission to Financial MegaCorp plc and can get better rates of interest as a result.
All lending and borrowing happens in the various Zopa markets.
When you join Zopa, we'll tell you what your Equifax credit rating is. If you want to be a borrower, we'll then use it to rate the likelihood of you being a good one. If you look like you'll be a low risk borrower, we'll let you borrow from a low risk market. If your credit rating is only quite good, we'll let you borrow from a medium risk one, and so on.
Lenders pick a market to offer their money in depending on the level of risk they are happy to take. They choose the length of time they want to lend their money for and set the interest rate they are happy to accept.
Result? Everyone gets the rate that's right for them (rather than the rate that's right for Financial MegaCorp plc and their shareholders).
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.
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.
Before you can lend or borrow, you need to become a Zopa member. This involves us establishing that you are who you say you are, and then getting your credit rating from Equifax. Once that’s done, you can come to Zopa, see all the other lenders and borrowers and look for a rate you’re excited by or comfortable with. The whole thing takes around 5 minutes and is completely free.
Tell me more about joining.
