Zopa mulls move into secured lending

ZOPA is looking to expand into the secured auto finance space, where it sees an opportunity to grow its borrower base.

The peer-to-peer lending platform, which usually specialises in unsecured consumer loans, said it sees strong potential in the secured car finance sector as there are healthy levels of demand but typically a poor customer experience.

“People are getting poor deals in that area and end up paying significantly higher annual percentage rates (APRs) than they would if they arranged their financing before going into a dealership,” said Amy Miller, Zopa’s chief marketing officer.

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Consumers looking to borrow money to buy a car tend to sign up to dealer-arranged loans, rather than access direct lending from high-street banks or alternative providers.

Tapping into that unmet demand from secured borrowers could help Zopa match an influx of money from yield-hungry investors. The platform had to stop accepting new money transfers temporarily in December due to an imbalance between lenders and borrowers.

The whole P2P sector is grappling with the challenge of originating more loans, as historically low interest rates send investors to the platforms in their droves.

Zopa is also eyeing two other routes that would add flexibility to its loan range and broaden its offering.

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While it has so far only offered loans with year-based maturities, it is now looking to offer a more diverse range of month-based maturities, such as 18-month loans.

It is also considering balloon-payment loans – a type of funding that does not fully amortise over monthly repayments and involves a lump-sum payment at the end of its term.

When the loan expires, the borrower has only paid off a portion of the principal and can either pay the rest in cash or decide to refinance its loan to benefit from lower interest rates.