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Cheat Sheet: P2P lending with Zopa
So you want to be a bank?

By Steve Ranger

Published: Tuesday 18 April 2006

A Cheat Sheet about Italian soup. Tasty.
I think you'll find that's zuppa. Zopa stands for 'Zone of possible agreement' - a term from business theory which basically defines the overlap between the lowest price someone is prepared to accept for something, and the most that someone else is willing to pay for it. As the company says: "If there's no Zopa, there's no deal."

So what is it then?
It's effectively a peer-to-peer lending and borrowing exchange. It puts people who want to lend in touch with people who want to borrow. The idea is to cut out the middle man and stop the bank manager getting fat at everyone else's expense. It was set up by some of the people behind Egg and its backers include companies that invested in Betfair and Skype, so it has some high-tech street cred.

Can I lend money?
If you're over 18 and a resident in the UK (plus jumping through a few other hoops) then you can loan up to £25,000 to other people at any one time. There are about 63,000 people registered with Zopa and it states that in its first year of operation "thousands of people have lent and borrowed, and millions of pounds has been exchanged". Lenders can lend from £10 to £25,000, over six months to five years. Lending of more that £500 is spread across at least 50 borrowers to reduce the risk.

I'm a bank now?
Well, not quite. You set the level of interest you want and then see if anyone is willing to take you up on it. According to Zopa its lenders are making around seven per cent before tax and bad debt. You also get to see some details of who you have loaned money to and what they are going to spend it on.

What about borrowing?
Borrowers can get from £1,000 to £15,000. You will even know who you've borrowed from - probably their first name and rough location, such as 'James of West London'.

And how does Zopa make its money?
The company charges lenders and borrowers a 0.5 per cent fee. It also makes a commission on repayment protection insurance.