The banks won’t lend but Zopa connects you to people that will

Ever since the start of the credit crunch I was wondering how Zopa, the social lending service that connects lenders and borrowers are doing.

Apparently they are doing well.

Giles Andrews, managing director of Zopa, told the FT recently in an article Innovative lending increases, that he has seen activity increase by 100 per cent month for month on last year.

The company has lent £26m since its inception in March 2005 to individuals borrowing an average £5,000 for personal purchases or debt consolidation.

“When we launched Zopa, we were seen as the wild child of loan finance,” Andrews said.

“Suddenly, we are the safe and sensible alternative to something that is broken. No-one could have predicted that, even 12 months ago. Unlike the banks, who depend on the wholesale money markets, we only loan what we have on deposit.”

And due to the tightness in the credit market those willing to lenders are achieving more than 10% in interest.

And Zopa have introduced some new functionality and ways to get a loan. One of them is called listings. (See picture).

They describe the listings thus:

In a nutshell, they work just like an online auction, except that the ‘price’ comes down instead of going up.

Once a listing becomes 100% funded, you’ll see that the overall interest rate will begin to fall as lenders compete with each other to be included in the loan.

Don’t worry if it doesn’t look like much is happening on a listing. The real action usually happens just before the listing ends.

Once a listing has finished, the borrower has up to 48 hours to decide if they want the loan at the final interest rate. There is no obligation to take the loan.

Also interesting to note is that some customers looking for a loan mention their Ebay score as a measure of their trustworthiness.