Zopa. Neither a borrower nor a lender be!

Marigold123 · 8 March 2005 at 1:56PM

Can you be sure that the credit score they are giving you is accurate? I'd be interested to know if this is this their own score, or is it based on your 'real' credit score with the main credit reference agencies?

Do you know whether they use Experian or Equifax? I gather that most potential lenders will use one or the other of these, and information held on one will not necessarily be the same as info held on the other.

I was also wondering how impartial the information they give you would be, given that they want to encourage you to use their services.

Also, just to remind people, there are quite often ways to obtain a credit report with both Experian and Equifax for free, if you search around a bit. I don't know about obtaining an actual credit score, but Experian are currently offering a free 30-day trial with access to credit reports. And I'm sure I saw something similar mentioned for Equifax somewhere recently. I suspect that in both cases your credit score would cost extra though.

EDIT: Just been and had a look at their site and it SAYS they use the credti rating supplied by Equifax.

Have to say the whole site looks a bit too 'chatty' for my liking. Certainly wouldn't use it to borrow or lend - might use it for credit rating, though, if I thought it wouldn't reflect badly on my rating to have the check done. I'm not too sure about that side of things; can anyone enlighten me?

Interestingly, it also looks as though they don't even let you see their T&Cs until you give them your email address.

Reestit_Mutton · 8 March 2005 at 2:29PM

MSE_Martin wrote:

Hi Reestit, while i agree with your points I think this was covered in my argument. Zopa's big strength is 'unstructured lending' as such a better analogy is with credit cards than with loans. Hence why 'short term loans interest free' or the half price plastic loans article which i detail above are better comparitors and Zopa does even worse against them

martin

Hi Martin,

I think we might be at cross-purposes here - it was the "dead-time" and "money recycling" aspects of Zopa that I was saying wasn't covered in your post. Both of these aspects of the system make it difficult to justify using Zopa as a lender unless the achieveable loan rate is very high.

I also find it rather underhand of Zopa to explicitly claim that it's free for lenders to use - the fact (buried deep in their T&Cs) that they pay no interest on money deposited is, in itself, a levy on lenders that they stand to gain financially from.

regards,
RM

Rafter · 8 March 2005 at 2:42PM

Martin,

While I share your nervousness about the system in its infancy, the concept does seem sound if it is bypassing banks who are making high profits in parts of the lending and saving market.

Unfortunately your money saving ideals that people should earn more on savings than they can borrow for (ie stoozing or chasing 0% or near 0% offers) is not sustainable in the wider banking system and would lead to a collapse in the banking system if everyone followed it.

If at some point, normality returns and savings rates are lower than borrowing rates then if the 1% that zopa charges is less than the wider banking system, and their credit risk management is sound then it sounds like an interesting concept and could be good value for both savers and borrowers.

How zopa can succeed while zero % deals persist and while banks are conducting a bit of a savings war I don't quite know.

However, their may be some people who have overstretched themselves on credit cards and who are paying 20% APR who will find a zopa lender willing to accept say 10% and halve their borrowing costs which has to be better than paying huge fees to a secured lender or loan shark.

Your right though about tax. If someone has £3000 to invest they would probably be better taking a cash ISA than using this system. However, if they have used their ISA limit, have up to £25000 to invest, don't like the stock market, think the banks are screwing them on savings rate and are prepared to take the same risk that banks do about bad debts then it may be a good investments. A lot of caveats there!

Looking at the major bank results though, over half their costs are bad debts. So Zopa lenders should always expect to get less than they bid that is unless Zopa performs better than the major banks at collecting and chasing defaulting customers.

I for one will not be signing up. What would make me reconsider is if Zopa was part of the co-op bank and was providing a credit union type service to people who would otherwise go to doorstep lenders or who are being ripped off by the conventional banking system.

R.

CTT_2 · 8 March 2005 at 3:10PM

Marigold123 wrote:

Can you be sure that the credit score they are giving you is accurate? I'd be interested to know if this is this their own score, or is it based on your 'real' credit score with the main credit reference agencies?

Do you know whether they use Experian or Equifax? I gather that most potential lenders will use one or the other of these, and information held on one will not necessarily be the same as info held on the other.

I was also wondering how impartial the information they give you would be, given that they want to encourage you to use their services.

Also, just to remind people, there are quite often ways to obtain a credit report with both Experian and Equifax for free, if you search around a bit. I don't know about obtaining an actual credit score, but Experian are currently offering a free 30-day trial with access to credit reports. And I'm sure I saw something similar mentioned for Equifax somewhere recently. I suspect that in both cases your credit score would cost extra though.
EDIT: Just been and had a look at their site and it SAYS they use the credti rating supplied by Equifax.

Have to say the whole site looks a bit too 'chatty' for my liking. Certainly wouldn't use it to borrow or lend - might use it for credit rating, though, if I thought it wouldn't reflect badly on my rating to have the check done. I'm not too sure about that side of things; can anyone enlighten me?

Interestingly, it also looks as though they don't even let you see their T&Cs until you give them your email address.

I know it is Equifax'sscore because it transferrred me to their site and asked my for senitive information relating to my credit file.
Thanks

Marigold123 · 8 March 2005 at 3:15PM

Ah, I see. Thanks.

MSE_Martin · 8 March 2005 at 3:35PM

Rafter

I couldn't agree more. My assessment is on the current marketplace. I have no problem with the Zopa concept on the whole.

The only thing I disagree with is

"However, their may be some people who have overstretched themselves on credit cards and who are paying 20% APR who will find a zopa lender willing to accept say 10% and halve their borrowing costs which has to be better than paying huge fees to a secured lender or loan shark."

Currently they are only going for high credit scorers so this won't happen. When i spoke to it on the phone, I said 'when you open it up to people with lower scores' i think it may become interesting - so do let me know. However at the moment in the words of family fortunes

Uh Urrr

MarkyMarkD · 8 March 2005 at 10:24PM

Rafter wrote:

However, their may be some people who have overstretched themselves on credit cards and who are paying 20% APR who will find a zopa lender willing to accept say 10% and halve their borrowing costs which has to be better than paying huge fees to a secured lender or loan shark.

-snipped-

Looking at the major bank results though, over half their costs are bad debts. So Zopa lenders should always expect to get less than they bid that is unless Zopa performs better than the major banks at collecting and chasing defaulting customers.

I for one will not be signing up. What would make me reconsider is if Zopa was part of the co-op bank and was providing a credit union type service to people who would otherwise go to doorstep lenders or who are being ripped off by the conventional banking system.

OK taking those in turn:

(1) If a ZOPA lender charges 10% APR to someone who would otherwise be paying 20% APR, that ZOPA lender is on average going to lose a lot of money. Fact.

(2) "Over half the banks' costs are bad debts"? Rubbish. The majority of bank costs, like any service business, is STAFF. Bad debt costs are tiny at this point in the economic cycle.

(3) Credit unions are all economically unsound, because they are lending at unsustainably low rates and only "making money" through subsidies. The banks are not "ripping off" these customers - they are charging a rate which reflects the risk of default - which is very high.

deemy2004 · 8 March 2005 at 10:25PM

CTT wrote:

Out of interest I registered last night with Zopa and after a few questions regarding my credit file they came back and said I have a score of 486.
Does anyone know whether this is good or what. I then applied for a loan but could not get anything higher than 1000 pounds stg.
With thanks,

486 good ?

They must be using their own scoring scale..

deemy2004 · 8 March 2005 at 11:38PM

Just signed up ! and I get a credit score of 488

I can lend to A-B and borrow from A.

From their website - Presently £97k in total is on offer as loans
With a total of 35 lending offers available

So very small scale at the moment.

Will see what else I can dig up

Maybe I'll give it a whirl with a small amount of cash... looks like fun

deemy2004 · 8 March 2005 at 11:44PM

Some more info on the credit scoring and what it means

What do these different credit categories mean? Each of the different markets – A or B – represents a slightly different level of risk for lenders. We only let people who we believe are very likely to repay their entire loan on time borrow from Zopa. We do this by looking at their credit score and by asking a number of other questions about their circumstances.

However, even within this range of good borrowers, we can divide people up to give lenders more control and flexibility. The A market, for example, is for borrowers who we are nearly 100% certain are going to repay everything they owe. We show lenders the expected returns they may be able to achieve in each market based on our categorisation of the risk. In this way, lenders can choose an interest rate that they are prepared to lend at that will cover any losses they may incur. Lower risk markets have lower rates, higher risk ones have slightly higher rates.

The credit category we assign a Zopa member is based on the credit score we receive from Equifax. A credit score of 400 – 475 means you are a Zopa B, a score above 475 means you are a Zopa A. Approximately half the UK adult population will score above 400, and approximately 30% are above 475.

There are many factors that affect your credit score, for example:

How many credit accounts you have, and how many you have applied for
Whether or not you are on the electoral role and other databases (e.g. the phone database)
How well you manage your credit accounts (Missing payments or using more than 80% of your credit limit will have a negative impact, timely repayments, or paying off a loan will have a positive impact)
Any County Court Judgments (CCJs) or bankruptcies
How long you have been with your employer, or how long you have lived at your home
A low credit score does not necessarily mean that you personally are a bad credit risk, but it means that people with your score are, on average, higher risk. Credit scores work well across groups of people, but can work badly on individuals. This is why, when you lend at Zopa, you don’t lend to a single person, but instead spread your loan over at least 50 borrowers.

Yowser ! See the bit about using 80% ! Thats against conventional stoozing wisdom ......... I.e. to cut down unused credit limits

Hey ! Theres a section where you can see who's lending and who's borrowing

i.e.
Stu borrowed £2,020 in Market B for 24 months at 9.6% !

Crikey.....9.6% is a very enticing rate of return.... Hmmmm... that is 9.6% per annum is it not ?

Hmmmm again ...... 9% net is 7.02% for basic rate tax payers. Now treat it as a business, and apply tax deductable expenditure against the loan profit

I'm starting to get itchy fingers......... where did I put that darn debit card.........

Zopa. Neither a borrower nor a lender be!

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