Borrowing from a Peer to Peer loan company

pearson27

hi all

is this a good idea?

any pros or cons?

thanks

jamesd

If it's the best rate it's fine.

Watch out for the ones that have initial charges. Those can be more than £1,000 at Zopa and they aren't refundable after the initial cancellation period. The cost is included in the APR but that calculation assumes you keep the loan for the whole term, so the APR is really higher if you pay it off sooner. £1,000+ is for the lower credit grade and a loan of around £15,000. It's less for smaller amount and better credit grades, much less for small amounts in the top grade.

Same general watch out for fees applies to any lender if you think you might repay early.

The P2P lenders tend to concentrate on the best part of the market so if you can get a loan from one you are quite likely to be able to get a better deal elsewhere at times.

If the amount is a few thousand Pounds a 0% credit card is probably cheaper. The limit here is whatever credit limits you can get on the card.

pearson27

thanks for a quick reply

so would you consider it for a loan of over £10,000?

pearson27

and if this type of loan was on my credit file, how would this be viewed by mortgage lenders and normal banks etc

jamesd

So far as your credit record goes, P2P loans are just normal loans. No reason for any concern about that. I had one myself and got a mortgage from a lender renowned for being tough soon after it ended.

How long a term? Five years I'd just look for the best deal at a comparison site, assuming your credit record is good. That probably won't be P2P. For three years or less a credit card or two might be cheaper, depends on your income and whether you can get card(s) with sufficient limit. Some cards do money transfer from current accounts, that send money to the current account, notably the MBNA brand.

Vampgirl

I borrowed 15k from Zopa over 36 months several years ago. They gave a very competitive rate and were attractive because it was easy and penalty-free to make overpayments (this was before the 2011 changes). I only paid a £130 loan fee and even including the fee, Zopa were by far the best choice for me at the time. No perceivable impact on my subsequent credit-worthiness since.

I would definitely consider using them again if I needed a loan, but it all depends on the rate they offer Vs what's available elsewhere.

jamesd

Zopa increased their fees early in 2013 when they introduced their Safeguard feature, which pays lenders if a borrower defaults, but is paid for by the new up front Safeguard fee for all borrowers, on top of their previous fee.

Like you I had a loan via them some years back, well before they introduced the Safeguard part of the fee.

Vampgirl

An indicative quote on Zopa this morning shows me a borrowing fee of £100 (for a 15k loan again) - their FAQ says that this already includes the Safeguard amount. I appreciate that this isn't a firm quote as I haven't properly applied so I suppose it could change later. But it obviously varies per person as well as the loan amount - definitely something to look out for and to make sure to include in any comparison.

jamesd

Their indicative quotes are for their lowest risk/cost credit grade, unless you did it while logged in and got a personal quote based on your own credit record.

The Safeguard fee is the anticipated lifetime bad debt rate, which I think is around 8% or so for the lowest Safeguard credit grade. That 8% would result in a £1,200 Safeguard fee plus Zopa's own fee, both non-refundable. Also worth knowing that this fee is added to the amount borrowed, so interest is paid on it as well.

The vast majority of people who borrow via Zopa actually repay significantly early, which makes the APR including the fee quite misleading for those people, who have it spread over more years than they really borrow for. APR takes a fixed fee and divides it over the years the loan lasts. So 8% over three years would show up as 8/3 = 2.67% added to the APR while if it's really repaid in two years the actual cost would have been an APR 8/2 = 4% higher (roughly, I'm ignoring things like the amounts being paid and when).

It is fine for someone who wants to consider borrowing there to put in their details and get a personalised quote so they can see what their own fee will be. This is done with a quotation search that's not visible to other lenders, so it's pretty much harmless. It's not until the borrower is one of the minority of those who get that far who ends up being accepted that the search is updated to an application search.

The main point about all this is that loans with up front fees tend to be bad for people who might repay early or overpay - whether it's P2P or not - and if using Zopa, make sure you know what your own fee will be and that it's non-refundable after the first few weeks.