Zopa simplifies; scraps shorter-term loans

Just when peer-to-peer bank Zopa was getting interesting again thanks to higher rates, it’s somewhat annoyingly announced plans to limit the kinds of loans you can make with your savings.

The new regime will see one, two and four-year loan terms scrapped, with only 36 or 60 month loans being offered to borrowers. This means you can no longer lock away your money as a lender for just a year or two in the normal market, although the ‘listings’ market, where you deal with individuals, will still offer the old flexibility.

Zopa claims the move will streamline the business for both lenders and borrowers. It believes too many lenders are put off by all the different fiddly options, and argues that the 36 and 60 month terms make for more attractive lending.

I’m uncomfortable however with the idea of locking myself into such a novel business model for three years or more, so I’ll probably not increase my Zopa lending as planned, at least not until these changes are digested by the Zopa community.

The full message from Zopa is as follows:

We’d like to give you at least a month’s notice about some changes that we will be making to the markets in a few weeks time.

What changes are we making?
- Borrowers in markets will be able to choose to repay loans over 36 or 60 months only.
- Listings will continue to provide borrowers with the option to repay over 1-5 years.
- Borrowers will still be able to repay their loan early with no penalty.

Why are we making these changes?
- Since Zopa began more than three years ago, more than 95% of your loans have been taken for a period of 3 years or less.
- The popularity of larger loans repaid over 5 years is increasing, particularly since we introduced the new fixed borrower fee.
- Almost half of our new lenders who sign up to Zopa do not become active and our hypothesis is that it is just too time consuming for them to make offers to all of our markets.
- This allows us to simplify the marketplace considerably, while still allowing borrowers to repay their loan early with no penalty.
- Because listings still enables all loan terms from 1 to 5 years, Zopa will continue to offer a wide variety of borrowing and lending options.
- By structuring repayments over at least 36 months, we aim to encourage fewer borrowers to repay their loan early, maximising the interest you earn from each loan and reducing the period your money might spend in your holding account. This is because the loans that have been repaid early to date were mostly taken for 12 and 24 months in the first instance, so that borrowers had paid back a good proportion of their loan after just a few months.
- We’re not envisaging that there will be any significant financial impact for Zopa from these changes. At most, we would earn 0.5% of the outstanding capital for a little longer if we can dissuade early repayment, but since we would hope that lenders would relend any funds repaid early anyway, we’re unlikely to earn anything more significant. These changes are purely aimed at simplifying our offer.

What does this mean for you?
- Your existing loans to the 12, 24 and 48 month markets will continue as normal with their repayments structured over the same term as the loan was agreed at.
- Your offer screens will become much simpler as you’ll only need to manage 8 markets instead of 18.
- Your funds will need to be offered to the markets for a minimum of 36 months.
- If you wish to lend money for less than 36 months, you will only be able to do this via Listings (depending on the listings available at the time).
- When this change goes live, any existing offer that you have in the 12, 24 and 48 month markets will be removed. If these offers included the 36 and/or 60 month market(s), the funds in this offer will remain on the market at the rates of return you have specified for the 36 and/or 60 month terms. Funds allocated to any existing offers that only bid for the 12, 24 and/or 48 month markets will be returned to your holding account. Funds that are loaned out or are in processing at this time will continue to have repayments structured over the loan term at which they were offered.

What do you need to do?
- If you have any money on offer for terms other than 36 or 60 months and wish your lending to be in these markets, you will need to do your best to get it loaned out over the next month. You may need to revise your rates slightly to do this.
- Over the next month, have a tidy up of your active offers, removing any offers to the 12, 24 and 48 month markets. Consider the impact this might have on your required rates of return for the remaining offers to 36 and 60 month markets.
- Check out the new lending offer screens when this goes live (we’ll let you know when it does).