I returned to the Zopa lending site today for a second impression after my initial review of Zopa. I noticed something that knocked my socks off about Zopa’s business model of social lending — some borrowers are not paying interest after receiving “help” from lenders. In fact, **some borrowers are “paying” negative interest at Zopa**! In other words, they are receiving money for having borrowed money. This is an amazing development in P2P lending!

The proof in the Zopa homepage screen shot below. I cropped out part of the screen (red line) to make the graphic smaller and added three blue checks to show you the borrowers that I am highlighting below as examples. Click the thumbnail below to see it in more detail.

The three borrowers that I am highlighting (blue checks in graphic) are:

- TinaM who is borrowing $5,000 to go back to school with a started interest rate of 9.99%. Currently TinaM is receiving help of $70.
- wlaffin who is borrowing $5,000 to pay off credit cards at a stated interest rate of 12.99%. Currently, he is receiving help of $66.
- Rugsaq who is borrowing $10,000 to grow his transportation business at 12.99% stated rate and is receiving help of $70.

Note that the links are to the profile pages which do not include the loans and the help amounts. The loans, interest rates, and help amounts are listed in the graphic above.

**Calculating the actual interest rates…**

Since most web-based loan calculators will not allow you to solve for the interest rate, I used Excel solver together with the interest rate spreadsheet from this website. Since I do not know the length of the loans, I must make some assumptions: 1) The length of the loan is two years 2) and the help will continue for the life of the loan. Additionally, for simplification, I have rounded dollar amounts (not interest rates) to whole numbers and I have only linked to my spreadsheets for the first example.

1) If TinaM is paying a stated 9.99% interest on a 24 month loan, the payment is $230 per month with total interest paid of $537. The monthly interest rate is 0.8325% (9.99%/12). (XLS file) Since TinaM is receiving help of $70 per month from lenders, I used the same spreadsheet to solve for (goal seek functionality) the interest TinaM would be paying on a $5,000 loan if her payment was only $160 per month. The **actual interest rate TinaM will pay is negative 24.15% and she will actually be paid $1,160 for having taken this loan**. (XLS file) TinaM will only pay $3,840 for her $5,000 loan because lenders will giver her a little help.

Perhaps the best method of showing the difference is to show the two graphs of the loans. Note that the interest rates listed are the monthly interest rates. The first graph is the stated rate of 9.9% and the second graph is the effective rate of negative 24%.

2) Using the same calculations and assumptions, Zopa user wlaffin is not paying 12.9% interest annually with a payment of $237. Instead, due to the help of $66 per month, he is receiving a loan at a **negative interest rate of 18%** and receiving $885 for having taken out this loan.

3) Since Zopa borrower Ruqsaq is requesting a $10,000 loan for business expansion, I am going to change the assumption to a 3 year loan term instead of 2 years to calculate his effective interest rate. At his stated interest rate, he would pay $336 per month and $2,112 total in interest. The actual interest rate he will pay with $70 in help is a **negative 2.79% per year**. The monthly payment will only be $266 and **he will receive an effective payment of $424** for having taken out this loan.

Unfortunately, not all borrowers are receiving much help from Zopa lenders, so negative interest rates are not standard. In fact, many people seem to be receiving little or no help at all. However, the average help according to the home page* is $22 per month, so it is still a good idea to borrow money with Zopa versus other P2P lending sites. The other sites, such as Prosper and Lending Club, do not offer the possibility to pay negative interest on your loan.

* Zopa home page lists $22/month help as average as of December 9th, 2007.

zopa, p2p lending, interest rate, help, money