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Zopa: Is Social Financing Better Than a Bank?

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zopa.com social financing


Social Financing

Before you run out and begin thinking that social financing is going to help you pay your mortgage, understand that loans are small, but they can prove helpful in many ways. It is also not entirely without the use of a credit union.

How It Works

The basics of how it works is by connecting those who wish to invest in the “Zopa CD” with those who need to borrow for business or other needs. The intent is to keep rates low for borrowers, even adding other benefits to minimize the cost of borrowing, while giving good rates of return in a safe investment vehicle for the investors. Sounds like a win-win scenario, doesn’t it?

According to Zopa’s comparison, their best rates (those with great credit) are only 8.49% while investors can get 3.75% in the 1-year CD. Of course, they paint a prettier than reality picture, as they state banks personal loans are considerably higher (the lowest being 11.55%) and that bank CDs give only a average of 3.65%.

My Own Comparisons

Here are some of my own comparisons…

I have great credit (over 720) and my credit card only charges 7.99%, assuming I don’t pay it off each month. Why not just use your credit card since these rates can be fixed (mine is) on both a personal and business level? With good credit and reasonable qualifications, you can secure a credit card well over $10,000 dollars, even giving mileage or other benefit, that has a lower rate.

As for investing, CDs are OK, but there are numerous other options, not to mention having your money “tied up” is not overly appealing. Besides, the CD rates shown on Zopa only show an average of the top 10 banks. There are many banks that provide greater rates on their CDs as well.

That doesn’t mean Zopa will not be the best deal for you. Zopa’s real benefit comes in the form of members helping out, hence the social financing term. Investors can provide money for borrowers they chose to help by providing monthly payment if you will. That benefit lowers the cost of borrowing for loan recipients. So, if you want to borrow and feel that you can attract “investors”, you could end up borrowing at little or even no cost at all.

As with other financing and investing options, Zopa is likely worth looking into to meet your own needs. However, caution should be taken and deeper research are required before you make the final decision. I can see potential opportunities to for borrowers to keep costs minimal and for investors to assist those borrowers while receiving a fairly decent rate of return.

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5 Comments

5 Comments

  1. ines

    April 14, 2008 at 3:30 pm

    Hey Robert, I think the concept is genius – nothing like utilizing social media to do something creative. I just visited Zopa.com and you can even see what different people are borrowing money for. Talk about getting involved in choosing who will borrow your CD money.

    I remember when INGDirect came out with their Orange accounts and how different the whole Internet Banking concept was – I’m curious to see how it pans out.

  2. Ann Cummings

    April 14, 2008 at 5:17 pm

    Robert,

    What an interesting concept that is – I looked around Zopa’s site a little, and found their ‘how it works’ to be pretty creative. Looks like it might just be worth a little consideration….

  3. Denver Mortgage Broker

    April 14, 2008 at 7:44 pm

    I don’t think anything could be better for this country than for something like this to catch on and the big banks to lose their stranglehold on the American people. I would like to see social networking at the local bank level — so that borrowers and depositors would become attached to people. It would facilitate community and break the big bank cycle. It would keep the money inside the local communities.

  4. Denver Mortgage Broker

    April 14, 2008 at 8:35 pm

    I read about something similar called Kiva — https://www.kiva.org/

    You can lend to entrepreneurs in the developing world to help eliminate poverty. It’s a great idea, and of course, you get to see their profiles and receive updates.

  5. Jon Griffith

    May 26, 2008 at 2:42 pm

    After reading a bit on the “how to” at Zopa.com, I can see that it may be a much better route than prosper.com. 20 months ago, I invested $1000.00 at Prosper.com, bidding on borrower’s request at a rate of $50.00 per borrower. I opened up 20 loans with an average rate of return in the 18% range. After 20 months, I have a net earnings of $259.00 less defaults, bringing my gain to $125.00. I’m no financial genius, but I calculate this out to being an 7.8% annual return. The current problem I have with prosper is that of the 26 current loans (the proceeds re-invest themselves as well) only 23 are current, and when there is a default, my profit is slashed. That is why my $259 is only $125. I should have been realizing a return of approximately 15.54%.

    But, that’s risk, and considering I haven’t had to do anything to manage the account, 7.8% is, well, just okay, but nothing to be terribly excited about. And, it’s not secured or guaranteed…so I could lose it all.

    I would prefer to be investing somewhere that would yield a 30% return…who wouldn’t?

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Economic News

Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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young executives

job openings

Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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