Zopa Glossary
A* markets
The A* markets are where A*-rated borrowers can borrow from. Lenders offering in these markets know their money will get lent to A*-rated borrowers only, so there is less risk than lending in the A, B or C markets. This is why rates in the A* markets are the lowest you’ll find at Zopa.
A*-rated borrowers
A*-rated borrowers are those borrowers with the highest credit scores. Their high credit scores qualify them to borrow from the A* markets, which offer the lowest APR. For lenders, lending to A*-rated borrowers brings the lowest rate of return, but also the lowest amount of risk.
Currently there are 2 A* markets: A*36 and A*60. The numbers refer to the amount of time in months that the lender is lending for and the borrower is borrowing for.
An example of an A*-rated borrower:
Paul is married to Paula and they have two kids - Pauline and Pauly. They live in a small village near Nottingham, in a 4-bedroomed house they bought just before little Pauline was born 12 years ago. Paul has repaid most of the mortgage already, and will have paid it all off within the next 3 years. Paula and he have several joint credit cards which they use regularly for large purchases (holidays, electrical goods etc) and which they always pay off on time. All their utility bills are paid via Direct Debit, so they're never late.
Paul is looking to borrow £10k in order to buy a car for Pauly to learn to drive in (understandably Paul won't let Pauly anywhere near his nice sports car).
A markets
The A markets are where A-rated borrowers can borrow from. Lenders offering in these markets know their money will get lent to A-rated borrowers only, so there is less risk than lending in the B and C markets, but more risk than lending in the A* markets.
There are currently 2 A markets: A36 and A60. The numbers refer to the amount of time in months that the lender is looking for and the borrower, borrowing for.
A-rated borrowers
A-rated borrowers are more creditworthy than B- and C-rated borrowers, but less creditworthy than A* borrowers.
An example of an A-rated borrower:
Michelle is married to Michael, and they live together in a 3-bedroomed house in London. They have a ginger cat called Mickey, whom they bought when they moved into the house, 9 years ago. She already had a mortgage when they moved in together, so she paid that off and took out a joint one with Michael. They have not missed a payment to date, and are ahead with their repayments. Michelle owns several store cards along with a Visa card, all of which take a battering on weekends but which are always paid off come the end of the month.
Michelle is looking to borrow £8k to fund a long-postponed honeymoon. They're planning a 2 month luxury round-the-world trip, and hope to do as much diving as possible.
AER
Rates for savings banks are always quoted as AER gross, which is what the interest would be if interest was paid and compounded each year. So it assumes you'll get paid interest on the interest you receive, which means you'll only ever get that rate if you don't withdraw any money and the rate doesn't change.
For Zopa lenders, this would be the rate your money is earning while it's lent out to Zopa borrowers, if you re-lend all your repayments as they come back. If you get 7% AER (after bad debt) lending £1,000 for 3 years, you'll earn £221.82 (£241.81 interest less £19.99 for the Zopa annual servicing fee).
In polite society, you should call it Annual Equivalent Rate – that's what its parents christened it, after all.
Annual statement
This is an income statement that we generate for lenders each year which shows the total gross interest gains made on your Zopa account, less any bad debt suffered, during the last UK tax year. It can be downloaded from your Zopa Account page.
APR
APR is short for April, which is the fourth month of the year.
APR is also short for Annual Percentage Rate, which is the yearly cost of a loan, expressed as a percentage. The figure takes into account not only the interest payable over the term of the loan, but also all other related charges and fees. So at Zopa, it covers the interest rate set by the lender plus Zopa's £118.50 fee.
Arrangement
If you see this displayed next to one of your borrowers in My Loan Book it means the borrower has fallen behind on regular repayments but an arrangement has been made for them to pay a reduced regular amount.
Not all late payers are allowed to move into an arrangement plan. There is a review of the borrower's financial status and only when it is clearly demonstrated that they have insufficient income to meet their original repayment commitment are they moved into an arrangement plan. An arrangement is not to be seen as an easy way out as we will be recording this as adverse credit with the Credit Reference Agencies.
Asset class
An asset class is a type of investment. Traditional asset classes include such things as bonds, stocks, cash and property - and financial experts such as Alpesh Patel are describing lending at Zopa as a completely new asset class.
B markets
The B markets are where B-rated borrowers can borrow. Lenders offering in these markets know their money will get lent to B-rated borrowers only, so there is less risk than lending in the C markets, but more risk than lending in the A* and A markets.
Currently there are 2 B markets: B36 and B60. The numbers refer to the amount of time in months that the lender is lending for and the borrower is borrowing for.
B-rated borrowers
B-rated borrowers are more creditworthy than C-rated borrowers and most of the population, but have lower credit scores than A*- and A-rated borrowers.
An example of a B-rated borrower:
Simone lives in a spacious flat in an ultra-trendy housing complex in the centre of Manchester. She lives by herself, but her boyfriend Simon often stays over. She bought the apartment 6 years ago, and has a 25 year mortgage which she is gradually paying off. She has two credit cards which she uses fairly regularly, though she puts most purchases on her debit card. A spell in the Guides as a youngster installed in her a strong belief in organisation, and she always pays her bills on time and ensures she's on the electoral roll.
Simone wants to borrow £5k to refurbish her kitchen, the only area of her flat she's not 100% happy with. She loves to cook, but feels the current kitchen is holding her back in her bid to master Italian cuisine.
Bad debt
Bad debt is the money lost when a loan is written off due to a borrower becoming unable to repay.
At Zopa, lenders' money is spread across a number of different borrowers, and anyone lending over £500 lends to at least 50 borrowers - which minimises the impact of any bad debt that might occur.
We also give lenders an estimate of the bad debt they're likely to experience before they make any lending offers, so they can tailor their rates to take account of it. We don't take any money off lenders to 'cover' bad debt.
You can see our current bad debt rates here, which are well below our predicted levels.
Borrowers
Zopa borrowers are trustworthy, financially savvy people who want to get loans at great rates and would much rather deal with Zopa lenders than banks.
C markets
The C markets are where C-rated borrowers can borrow from. Lenders offering in these markets know their money will get lent to C-rated borrowers only, so there is more risk than lending in the A*, A or B markets, but potentially greater returns.
There are currently 2 C markets: C36 and C60. The numbers refer to the amount of time in months the loans are for.
Collections
If you see this displayed next to one of your borrowers in My Loan Book, it means that our Collections Agency are chasing the borrower's arrears on your behalf. This corresponds to the 'late' section in your pie chart.
Consumer Credit Licence (aka CCL)
If you want to have more than £25,000 in loans outstanding at any one time at Zopa, you need to get what's known in the trade as a Consumer Credit Licence.
We can help you get one of these - just contact us.
Cornish pasties
Meat loveliness wrapped up in pastry packages
C-rated borrowers
C-rated borrowers are more creditworthy than most of the population, but have lower credit scores than A*-, A- and B-rated borrowers.
An example of a C-rated borrower:
Norman lives in Norwich, in a semi-detached house which he bought 4 years ago. He has a small dog called Norbert who he walks twice a day. Norman has a responsible attitude to money, and has just finished paying off his student loan. He uses his credit card sensibly, preferring to stick to his debit card where possible. During his student days he was not on the electoral roll, but he has been for the last 6 years now.
Norman is borrowing £1,500 to pay for laser eye surgery (he's sick to the back teeth of having to mess around with contact lenses, and figures the operation will pay for itself in the long run anyway).
Credit score
When you apply for a loan at Zopa we calculate a score for you based on all the personal details you give along with the details we obtain from the credit bureau. This score is used to place you in one of the Zopa Markets. Therefore the score given to you by a credit bureau and your Zopa score are very different.
Equifax is our main credit report provider and you can contact them directly for details of your current credit report.
Custom lending
There are two ways of lending money at Zopa - custom lending and quick lending.
The major difference is that if you choose custom lending, you can set different returns for different markets, whereas in quick lending, you choose one return for all the Zopa markets.
So custom lending is the more hands-on way of lending at Zopa. We show you the market conditions and the expected bad debt rates, and then you choose your terms, your interest rates and the markets you want to offer in. For instance, you might choose to lend to A-rated borrowers over 36 months at a rate of 6% and a predicted return after bad debt and fees of 5% - but then you might decide to lend to C-rated borrowers looking for a 3 year loan at a rate of 13.3% and a predicted return of 7%.
If you're the sort of person who can't watch TV without having the remote control in your hands, then custom lending is for you.
Default
A default is defined as a loan which has fallen more than four months into arrears.
If you see this displayed next to one of your borrowers in My Loan Book it means that this borrower's loan is now in a state of Default. Zopa will instruct P2PS Limited to take an assignment of the bad debt from you. Affected lenders are given 28 days' notice prior to the purchase, and have the opportunity to decline the offer from P2PS Limited. Once the 28 day period has elapsed ownership of the debt has passed to P2PS Limited who will look to pursue the borrower in court, or by any other reasonable means, for repayment. Where successful, any funds reclaimed over and above fees incurred by P2PS Limited will be returned to the borrower's original lenders.