Zopa “Gotchas”
I saw a post on Martin Lewis’ MoneySavingExpert which implied Zopa charges some hidden extras for early repayment of a loan. I realise this is an unclear, but important, area.
Just to be clear: when you repay your loan at Zopa all you pay is the capital and interest due up to the point at which you repay. It’s very simple.
You don’t pay:
- all the interest due on the full term of the loan
- an undue proportion of the interest on the full term of the loan
- a penalty (eg. a termination fee).
Each monthly repayment includes paying back a bit of the loan capital and some interest. What we do when you ask for an early repayment is figure-out how much capital is left unpaid and add onto that the amount of interest due since your last repayment. That’s it.
We made it that way because we know everyone is fed-up with hidden charges. And we also know that most people repay their loans early. And we guess that most people don’t think about that aspect too hard when they are shopping around.
So even if you do spend ten hours on a spreadsheet trying to compare five different loans, how do you compare a low-rate loan with “gotchas” and a higher-rate loan without “gotchas” …. ?? (Reach for your Black - Scholes option pricing model perhaps ? I don’t think so).
Lesson for Zopa: communicate our borrowing proposition better. (I’ve put that challenge to our marketing team).
The UK market is so used to financial scams that we are all cynical about financial products. We just don’t believe what we are told and we look for the “gotchas” in the fine print.
Any ideas about how Zopa can be clearer on this point ?
And here’s a little prize while we’re on the topic of fleecing borrowers. A Zopa fleece to the clearest and most succinct explanation of the “rule of 78″ (as defined in the Consumer Credit Act 1974 ). Max 20 words. Now there’s a challenge.
Nick Taylor
Posted on February 25th, 2006 at 8:04 pm
I think it’s really important that Zopa does everything it can to explain to people quite how different they are to a standard loan from a bank. It was good to see an article in today’s Guardian advising that Zopa was currently the market-leading loan offering, but of course that’s just the headline loan amount.
It’s a difficult challenge to get people to really understand what they’re getting into, and why it’s such a different experience. Without being a marketing expert, I’m not really sure what sort of slogan to come up with - but there ought to be some way of expressing the lack of charges/penalties/fees/overheads and ‘bank evil-ness’ that characterise the Zopa offering in addition to capitalise on the fact Zopa is currently the cheapest loan offer available.