Personal Loans: How to get the UK's cheapest Discussion Area

CHIHUAHUA

Got my loan with no hassle at all at the 5.7% rate - did it all online except the forms they sent me to sign and did not have any hassly calls about insurance - thanks Martin for such great up to date advice.:A

northantsnick

I had a loan with Nationwide. After running up some credit card debt, I asked Nationwide for a top-up on my existing loan. As the top up was under £5000 and therefore came into their newly implemented thresholds for loans (which were brought in after I had taken out the loan), I was being quoted 12.9% (up from 6.7% on my existing loan). After checking out the MSE weekly mail, I approached moneyback. I was accepted at 5.7%. Like ballynoes, I was given the hard sell with the loan insurance for more than 20 minutes - very uncomfortable as I was at work - so I caved in and asked them to include it. After I received the forms, I rang up (to standard customer services) to say could they reissue agreement without insurance, which they did without discussion. Forms were reissued which I signed and sent off straightaway. From application online to money in the bank was less than two weeks. Took PPI insurance separately with Post Office and saved £15 a month (£360 over term of loan - 2 years, £4400).

veganline

MSE_Martin wrote:

I always do my homework
You'll find Zopa detailed fully in the article with when it is appropriate.... however its not suitable for many and by no means is always cheapest
martin

I haven't done my homework on this, partly because I'm not sure how. There are different guideline bands of rates for different lengths of loan & credit rating. Remarcably, most rates seem below the chart-topping unsecured loan rates on best buy tables, but without a firm figure to quote it's hard to be specific. Also, Zopa exclude below average credit risks even more than the lenders on the tables. I'm a lender on the Zopa market, but apparently I wouldn't be accepted as a borrower!

paulabest2003

I dont have bad credit.i dont have a mortgage or loan.
Looked around on the internet for good deal on £20,000 loan,all the charts showing repayment amounts show i can afford it.
But unknown to me, each form online i filled in or one the phone with different companies is all going against my chances of borrowing anything. How frustrating.
My bank of 25years is alliance & Leicester and their loans manager on the phone today told me if i had asked them first i would have got their top rate/low rate 5.something% but now i've gone fishing he said i have no chance now!
We all know having no money must be stressful... but having money shouldn't give us so much grief

michaels

One thing to note on Zopa, they have a referral scheme so a chance to get the loan even cheaper, currently (for the next few days) you can get up to 75 quid back for taking out a loan, see my post on the referers thread.
http://forums.moneysavingexpert.com/showthread.html?t=210194

MarkyMarkD

Whilst Martin's only reiterating what ZOPA claim on their own website, it is NOT correct to state that ZOPA do not charge an early settlement penalty.

Because of the way ZOPA's charges are structured, there is an early settlement penalty inherent in the amount you pay, unless you allow the loan to run to its term.

The reason this applies is that ZOPA add 0.5% to the amount you borrow, up-front, and this is not refundable.

Whilst the 0.5% fee is included in their quoted APRs, because it isn't refunded if you settle early, it is a form of early settlement penalty and to claim that there isn't one is rather disingenuous of ZOPA.

To illustrate this:

If you borrow £10,000 at 9.5% APR for 5 years from ZOPA, you are actually paying 9.26% APR to the actual lender and 0.5% on the initial balance to ZOPA (and this 0.5% on the initial balance equates to 0.23% on the APR).

If you settle early, because you've paid ZOPA's 0.5% up-front, and don't get it back, your APR is higher than stated for the period of the loan. If you settle after a year, say, your actual APR is 9.88%.

Many other lenders charge one month's interest for early settlement. ZOPA charge up to 0.5% of the entire advance (but of course, it's only this much if you settle during the first month) which could be equivalent to a month's interest if you are paying an APR of 6% or less.

So, in summary, ignore ZOPA's claim not to charge early settlement penalties - it is a false claim. And don't use this as a reason to choose ZOPA over and above other lenders.

ZOPA's APRs are also, in some cases, a bit dodgy. If you look at their site right now, you can be offered £1,000 for 3 years at "5% APR". But the repayments are £1,083.17 in total, and a bit of number-crunching shows that as an APR of 5.39%. So, if you are about to borrow from them, compare the monthly repayments with other lenders as well as looking at the headline APR.

MSE_Martin

MarkyMarkD - what a very good point - i will be honest I hadn't thought of it that way and agree with you - Im just about to nip off on a break for a week or so but will address this when i get back.

Martin

James_Alexander

Hi there

Firstly, let me declare an interest - I'm a co-Founder of Zopa.

Whilst I can see where MarkyMarkD is coming from, I have to say that I disagree with his conclusion that we charge an early repayment penalty. I fear that inspired by the underhand tactics of many conventional lenders and the banking community generally, he has gone looking for cynical practices where there are (and certainly there is no intention of any) none!

Let me explain why:

We make it perfectly clear to borrowers that there is a set up fee of 0.5% which is applied to the loan upfront. As almost all of the costs of helping a borrower are incurred by Zopa upfront, it makes sense that the fee is applied in this manner. Rightly so, the fee is reflected fully and accurately in the APR we quote.

If we did not charge this fee, Zopa would receive absolutely no revenue, and given the considerable costs of assessing borrowers, running the Zopa marketplace etc, we would be out of business almost immediately. If we chose to refund the fee to those who left early, then similarly we would be making losses on all that business.

Now I do accept that should a borrower pay off the loan early, the APR that would have applied for that shorter term would have been higher, as MarkyMarkD points out. But to claim this constitutes an early repayment penalty is I believe rather contrived, and certainly harsh. Zopa does NOT levy any form of additional charge when a customer pays off their loan early – and surely that is the definition of an early repayment penalty?

We must remember that conventional lenders are not required to reflect the additional charges that they charge on early repayment in their APR. So the impact of these additional charges is invisible in the APRs they quote. We on the other hand DO include our 0.5% fee in the APR we quote. So at the stage of comparing one loan against the others, which of course is what APRs were created for, we believe our APR is fairer – and a long way indeed from being advantageously pitched relative to the other loans in the market.

MarkyMarkD may be right that if someone repaid their loan early at Zopa the APR we would have shown up front for a loan of that shorter term would have been slightly higher. But what is the alternative? To provide a whole series of slightly different APRs covering each of the possible early repayment possibilities? Clearly this would be impractical. More importantly it would be quite misleading for the customer as an APR is a method of comparison – and other lenders can leave their real early repayment penalties out of their APR calculations altogether.

The reality here I believe is that MarkyMarkD has gone looking for cynical tactics in a business that is trying to be as straightforward and crystal clear as possible. The fact that our charging structure – that most will agree is admirably simple and transparent – can be seen in the way that MarkyMarkD has, says more about the difficulties of trying to be as simple and transparent as we are striving to be in a field where regulations and their mechanisms like APRs are designed to cope with far more complex, opaque structures and more cynical business practices.

There is absolutely nothing deliberate, or indeed “disingenuous” in our approach and our statements that we do not levy an additional charge on early repayment. However, to be utterly sure that no one could get the wrong end of the stick when looking at our communications and thinking about the early repayment situation, I have asked the team to review all wordings as soon as they can to remove any potential ambiguity or lack of total clarity.

I'm really happy to take this up directly - please just email me at james@zopa.com and I'd be happy to talk - and of course we're always open to suggestions on how we can improve Zopa for all our Members (may be easiest at our discussion board at https://www.zopa.com)

Many thanks

James

James Alexander, co-founder Zopa

Phantom_Flan_Flinger

Zopa didn't work out the best for me when I had my last loan.

Their best rate at the time was 5.2% but I was offered 6.9%. Not that bad I know, but I stopped the application at the acceptance stage and went to Northern Rock and got their rate of 5.7%.

Mind you, I did get a courtesy call from someone at Zopa the next day asking why I hadn't gone through with it. He did mention that I had an excellent credit rating, was sorry I wasn't proceeding and asked that I keep them in mind for next time.

MarkyMarkD

I appreciate James's detailed reply. I should point out that I only said that it was "rather disingenuous" - in the sense of rather meaning "quite" not "very" (and I know that "rather" is rather an ambiguous word.

I also understand why Zopa wants to charge an up-front fee, and why other lenders want to charge early repayment penalties - both are effectively to cover the loss of profit, which would otherwise cover the costs of setting up the loan.

But the point is that Zopa are making a big "song and dance" about the fact that they are not charging an early repayment penalty, whilst still charging customers who redeem early an effectively higher rate of interest than those who don't - which is, de facto, an early repayment penalty.

There's nothing wrong with Zopa's 0.5% charge - it doesn't upset me at all. It is a reasonable charge for the service they provide.

But someone who compares a Zopa 5% APR loan "with no early repayment penalties" and a XYZ plc 5% APR loan "with no early repayment penalties", and thinks that they are exactly the same, is actually getting short-changed - if they redeem early, the Zopa loan will cost them more.

I appreciate that getting this across in the wording is very difficult - it took me a long time to work out that there was an issue here, and to quantify it for my own satisfaction - but the essence is that Zopa cannot fairly claim not to charge any early repayment penalty. I think the best compromise is something like "whilst we don't charge any extra interest for early repayment of your loan, the 0.5% Zopa fee is not refundable so the total APR on early-settled loans will be higher than the rate stated on your agreement" or something like that. But I doubt James will like that too much!

To go to extremes, a 0.5% Zopa fee works out at 6% APR if the loan is repaid after only one month. When you add that onto the 9.26% APR you are actually paying for the loan, in my example (with a published APR of 9.5%) that's a big deal - a "true" APR of over 15%.

BUT equally well, for an XYZ plc 9.5% APR loan with one month's penalty interest, the "true" APR if settled after one month is around 19%.

So, after blathering on quite a lot, Zopa's early repayment penalty is lower than a one month penalty, but it's NOT nil. That's what I consider misleading, particularly as there ARE mainstream lenders who do not charge any early repayment penalties and against whom Zopa customers will, in all likelihood, compare Zopa loan offers.


I should also hasten to add that I've not gone out to find fault in the Zopa business model. But I do have serious concerns that those funding Zopa loans may be, in general, accepting returns which are too low for the risks they are facing, and that they are doing so without a real understanding of those risks.

Most certainly if ANY borrower can borrow from Zopa at 5% APR, including Zopa's 0.5% fee, either the lender funding that loan is completely daft, or Zopa is subsidising loan rates to get "best buy" positioning. It's interesting to note that the depth and breadth of loan availability at the "best buy" rates is very thin indeed - when I found a 5% APR rate, it was only available on a small loan and over a short term.

I also, as it happens, find Zopa's "one loan at a time" policy very strange. Most lenders are very happy for you to increase the size of your loan as and when you require it, or indeed to extend its term. But Zopa require you to fully pay off your original loan before you can take out another. All this seems to do is to stop people taking out a number of small loans (the only ones that seem to be available at good rates ) to get to the amount they actually want to borrow. If the customer's credit rating supports the larger aggregate amount, I honestly don't understand the business reason for this - particularly as Zopa loans are sub-divided across so many individual lenders.