The UK’s leading peer-to-peer lender, Zopa, has launched an app-based travel credit card in an attempt to compete with digital banks.
The credit card offers free spending abroad and innovative features such as allowing customers to set aside a jar of money for emergency spending. However, the deal comes with a representative APR of 34.9%.
Zopa’s card launch is firm’s latest step away from controversy peer-to-peer investment everyday banking sector, having obtained his UK banking license five months ago.
Here, which one? see what the credit card offers and if it’s worth trying.
What is Zopa?
Zopa created the first peer-to-peer lending platform in 2005, where people lend money to other individuals or businesses. As a lender, you are expected to receive interest and get your money back after the loan is paid off.
However, the peer-to-peer industry has struggled in recent years, with some of Zopa’s biggest rivals falling under administration, leaving thousands of investors at risk of significant losses.
Although he already offers savings accounts, personal loans and auto financing, Zopa wanted to switch to a more traditional banking model in order to increase his profits.
It started recruiting staff to develop its new credit card in 2018. It received a provisional banking license last year, but still needed to raise additional capital to assure regulators that it was stable enough to operate. as a full-fledged bank.
At the end of last year, it raised £ 140million from US investor IAG Capital to obtain its license, which was officially granted in June 2020.
What does the Zopa credit card offer?
Zopa offers an initial credit limit of between £ 200 and £ 2000 depending on your situation and charges a representative APR of 34.9%. This means that he must offer this interest rate to at least 51% of applicants.
However, Zopa’s website states that rates can vary from 9.9% to 34.9% depending on your personal circumstances.
The APR is the interest you will pay unless you pay the balance in full each month. An APR of 34.9% is relatively high compared to other credit cards on the market right now. According to Moneyfacts, the average APR for card purchases is currently 25.2%.
The card also doesn’t charge a fee for using overseas, which means you can take advantage of Visa’s standard currency conversion rates – most other credit cards add fees on top of that.
Zopa’s credit card also comes with a range of different digital features (similar to those offered by challenger banks such as Monzo and Starling Bank) which can be appealing to those who want to track their spending on a regular basis. These include:
Pot ‘Safety Net’
It allows you to set aside a jar of money called Safety Net, which allows you to lock in a portion of your available credit balance for small, unforeseen expenses.
You can set your own personal finance buffer during the initial setup of your card and receive instant notification, which lets you know when you’re near your safety net limit.
You will not be charged any fees if you need to use your safety net fund.
It also gives balance updates after purchases showing how much credit you have left and instant notifications on purchases. Spend tracking is available on the app so you can see the categories you’re spending in.
Freeze and thaw
You can instantly freeze and release your card in the app if you notice anything unusual, and immediately report your card as stolen.
Activate / deactivate expenses
You can activate / deactivate certain types of expenses like gambling and cash withdrawals.
How does Zopa’s credit card compare?
Zopa credit cards interest are higher than most others in the market.
The provider can target the “ subprime ” market – those with limited or damaged credit histories who may not qualify for mainstream cards but want to increase their credit rating.
The table below shows the top “Credit creation” cards on the market currently that do not require you to have an existing account with the provider.
Source: Which one? Compare the money. Data correct as of November 5, 2020.
It should be noted that the best credit cards for those with bad credit charge a fee for use abroad. Zopa’s deal could therefore appeal to those with limited credit records looking for a travel credit card.
However, if you have a decent credit history, you may be eligible for a more competitive travel credit card offer with a lower representative APR.
The table below shows the major travel credit cards that do not require you to have an existing account with the provider or charge a monthly fee.
* The Metro Bank credit card only allows free spending in Europe. Source: Which one? Compare the money. Data correct as of November 5, 2020
Which? Compare money allows you to search hundreds of credit cards to help you choose the best deal for you based on service quality as well as costs and benefits.
How does the coronavirus affect loans?
The coronavirus has had a huge impact on people’s finances, with many people having to borrow money to pay for essential costs or struggling to pay back what they owe.
In July of this year, UK Finance found that 1.05 million people had been granted payment holidays on their credit cards for three months.
What else, Which? research shows that the number of households that missed credit card or loan payments over the past month may have doubled from around 410,000 in September to 780,000 in October amid the coronavirus crisis.
The deadline for requesting a payment holiday on credit cards, loans and other credit products has passed October 31, with banks being required to instead offer tailored support to clients facing financial problems from November 1. But with lockdown measures in England starting November 5 and the leave plan having been extended, the FCA presented proposals to extend payment holidays on credit products up to six months.
Since August, which one? argued that lenders need solid plans to get troubled borrowers through the winter months, after finding that workers on leave were three times more likely to have missed their bills.