As the nation becomes more web savvy and social networking sites continue to grow, we are seeing more traditional industries facing competition from online companies.  Banking is no exception, as online banking and exclusive online rates have long challenged traditional banks and building societies.  However, lending from traditional banks is not the only option available anymore. Zopa lending challenges the lender-borrower norm and works on a peer to peer lending basis.

So how does it work? Well here is a typical scenario for someone looking to invest their money.  Chris has £5,000 and wants to earn a better interest rate than he can get in a traditional savings account, and so invests his money with Zopa to maximise his return.  Chris can choose the rate, risk level and time period he is happy to lend out at.  For a small fee, Zopa arranges the transfer and risk management. For example, this could mean that no more than £10 of Chris’s money will be lent out to more than one person, so essentially Chris is lending to 500 people. It can also work in the favour of borrowers too, as the lending rates on Zopa can be extremely competitive.

And how does Zopa compare against traditional banks?  Well Zopa is particularly competitive in the lower amount, short term loan market.  This encourages responsible lending and getting a fair typical APR for the amount you need to borrow.   In this economic climate and with the mistrust of the banks and their lending tactics, Zopa is a great alternative for both those needing to borrow money or those who wish to make a good return for their investment.

Advertisements