Zopa offering loans at 4.9% representative APR until Wednesday

The cheapest personal loan on the market also offers the best terms and conditions. But the low price from Zopa finishes on Wednesday.

Zopa is offering loans at just 4.9% APR until Wednesday 22nd May. This is the lowest personal loan rate around and is available on loans between £7,500 and £10,000 lasting one to three years.

Zopa is low risk

As with almost every loan you can get, the advertised rate is only offered to half of the applicants who are accepted. The other half of accepted applicants will get a higher rate than 4.9% APR.

However, unlike most other lenders, Zopa will initially give you a quote based on a “soft search” of your credit file, which won't leave a bad mark on your record. You then need to apply for your loan, at which point Zopa will do a full credit search. You can read more about this in The lenders who won't damage your credit score.

I've seen a very small number of discussion board users write that they received a positive initial quote from the soft search, but were rejected when they applied afterwards. That means they will have acquired the small black mark on their record from the full credit search, but without a loan to show for it.

So I don't think we can quite say that Zopa is 100% risk free, but I think it's probably about as close as you can get.

Zopa's borrowing fee

Zopa adds a borrowing fee to your loan. This fee varies from £0 to £190.

The fee is included in the APR quoted, which means it doesn't make any difference whatsoever to the cost if you need the full term to pay it off.

In other words, if Zopa quotes 5% APR over five years whereas another lender that doesn't charge a fee quotes you 5.1% APR, the Zopa loan will still be cheaper, fee included.

Early repayment: the fly in the ointment

Zopa is one of the few loans that doesn't charge an early repayment fee. However, if you pay off the loan early, the effective APR you pay with Zopa rises because you still have to pay the part of the borrowing fee that is still outstanding on the loan – even though you're no longer getting your full money's worth for it.

It's complicated. But the nub is that, unless the fee Zopa asks you to pay is closer to zero than £100, or unless the interest rate lenders are asking you to pay is very high, early repayers could easily end up paying more overall with Zopa compared to another lender with the same rate.

[SPOTLIGHT]This is still true even if the other lender will charge you an early repayment charge (which the law restricts in size).

I don't want to put you off repaying early, however. You'll still save money by doing this whether you borrow from Zopa or another lender.

Table of cheapest loans

Below you'll see the cheapest loans based on different amounts and varying duration. RateSetter is one of them, and it also offers soft quotes much like Zopa. It also charges a borrowing fee in the stead of an early-repayment fee.

Derbyshire Building Society is another lender in the table below. Derbyshire is a trading division of Nationwide. You might already know that Nationwide offers a similar soft quote to Zopa – but the Derbyshire division does not.

Remember that the advertised interest rate shown in the table is the rate that half of accepted applicants will receive. The other half will usually be offered a higher rate.

*Sainsbury's, Yorkshire Bank and Tesco also offer the same rate for this loan amount and duration.

**Yorkshire Bank and Tesco offer the same rate for this loan amount and duration.

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