If you’ve got a good credit record, need a modest amount of cash for a valid reason, yet find that Banks are shutting doors in your face, then you could consider borrowing from someone like Zopa.

But although Zopa is a social lending exchange, it is not a bank, and many compare it more to eBay, than HSBC.

It works by matching cash-rich individuals looking for good returns for their money, with people wanting money for genuine reasons. And although it might have altruistic leanings, this is not for people at their last resort. Only people with good records are allowed to play, so, in a way, it can only claim some social awareness brownie points.

And if you’re wondering where Zopa comes from; the initials come from Zone Of Possible Agreement, which refers to what exists between two parties in an agreement.

Launched in 2005, Zopa boasts that it offers both borrowers and lenders the best rates, because it does not have the overheads and regulatory regime of the mainstream banks. With a Zopa agreement, it is the market that sets the rate, not the authorities.

But that’s not to say that Zopa is unregulated. It comes under the auspices of the Office of Fair Trading and is a member of the Finance and Leasing Association, and the anti-fraud CIFAS. But, from the lenders point of view, it is not regulated by the FSA, which means that any money lent to borrowers through the scheme is not protected.

So what makes the ideal Zopa customer?

You must have a recognisable identity, a visible credit history, an income that demonstrates you can afford the loan and a good track record of repaying debt.

Don’t bother if you have lots of credit cards that haven’t been paid for some time, high levels of unsecured debts, a poor debt history, or CCJs. Prepare for a detailed credit scoring before you can sniff out the money.

You can borrow up to £15,000 and the interest rate which is decided by your status, divided into five categories: A*, A, B, C and Young (for borrowers aged between 20 and 25). The riskier you are deemed by Zopa lenders, the more you will have to pay for your money.

But the rates for a Zopa, at the time of writing, are competitively placed in the market. For example, if you were to borrow £5,000 over three years and you were A* status, then the rate you would be charged is 8.1%. This compares favourable with MINT at 13,9%, Smile at 12.9%, First Direct Loan at 11.9% and Abbey at 8.9%.
 

Guest Article by Neil Camp