Let's work a simple example using a smaller version of Zopa. This version has four markets (12 month A, 24 month A, 12 month B and 24 month B). The first thing it needs are some lenders, so here they are with some wonderfully imaginative names:
| Date | Amount | Exposure | A12 | A24 | B12 | B24 | |
| Lender1 | 01/05/2006 | 100 | 10 | 2.5% | 3% | 3.5% | 4% |
| Lender2 | 01/05/2006 | 50 | 10 | 1.5% | 1.6% | 1.7% | 1.8% |
| Lender3 | 01/05/2006 | 200 | 10 | 3% | 4% | 5% | 6% |
| Lender4 | 02/05/2006 | 200 | 10 | 4.2% | 4.2% | ||
| Lender5 | 02/05/2006 | 100 | 10 | 2% | 2.2% | 2.4% | 2.6% |
| Lender6 | 03/05/2006 | 70 | 10 | 5% | 5.5% | 6.5% | |
| Lender7 | 04/05/2006 | 20 | 10 | 2.5% | 3% | 3.5% | 4% |
| Lender8 | 04/05/2006 | 80 | 10 | 10% | 12% | 14% | 16% |
| Lender9 | 04/05/2006 | 500 | 10 | 4.5% | 4.8% | 5.2% | 5.6% |
| Lender10 | 04/05/2006 | 100 | 10 | 3.5% | 4% | 4.8% | 6.2% |
Each lender has put in a different amount of money, they have chosen which markets they want to be in, and they have chosen the rates of interest they want to earn. Note that this is only supposed to be a simple example, so the interest rates and amounts shown here are only representative of sample rates and amounts. Don't be putting your own money into Zopa at 1.5% just because this example says 1.5%!!
You can put your money into several markets at the same time. The table shows Lender1 offering £100 in all four markets - this does not mean he is offering £400. It means he's offering £100, available to whoever matches first in any of the four markets.
As a lender, you don't have to put all your money into the same market at the same rate. For example, if you wanted to put £100 into Zopa, you could put £50 into A12 at 5% and the other £50 into A12 at 6%, then see which money gets lent out quicker. If you put money into the market more than once, you may find you're lending twice to the same borrower. This isn't a problem, but it does double your exposure in case that borrower defaults.
Talking of exposure (the maximum you can lend to a single borrower from a single offer), you'll see that all the lenders in the table have theirs at £10. This is a simplification for the model - how it actually works is the system takes the amount you offer (say £1000) and divides it by 50 (£20) to give you 50 borrowers. If you offer more than £10,000, then the system sets your exposure to £200 regardless of how much you offer [Note: This is different for PowerLenders but lets ignore them for now]
As well as lenders, Zopa needs some borrowers. Here comes one now:
| Borrower1 | 05/05/2006 | A12 | 50 |
He wants to borrow £50 on the A12 market. He is matched up with lenders based firstly on the rate they are offering to borrowers in the A12 market (From lowest to highest) and then the time they placed their offer (From earliest to latest).
So - he is matched first against Lender 2 (Because he is offering the lowest rate) then Lender 5 and then Lender 1 (Not Lender 7, because Lender 1 got his offer in first), then Lender 7 and finally Lender 3. He gets £10 each from these 5 lenders to make the £50, and other lenders are not matched because their rates were too high.
So the lenders table now looks like this:
| Date | Amount | A12 | A24 | B12 | B24 | |
| Lender1 | 01/05/2006 | 90 | 2.5% | 3% | 3.5% | 4% |
| Lender2 | 01/05/2006 | 40 | 1.5% | 1.6% | 1.7% | 1.8% |
| Lender3 | 01/05/2006 | 190 | 3% | 4% | 5% | 6% |
| Lender4 | 02/05/2006 | 200 | 4.2% | 4.2% | ||
| Lender5 | 02/05/2006 | 90 | 2% | 2.2% | 2.4% | 2.6% |
| Lender6 | 03/05/2006 | 70 | 5% | 5.5% | 6.5% | |
| Lender7 | 04/05/2006 | 10 | 2.5% | 3% | 3.5% | 4% |
| Lender8 | 04/05/2006 | 80 | 10% | 12% | 14% | 16% |
| Lender9 | 04/05/2006 | 500 | 4.5% | 4.8% | 5.2% | 5.6% |
| Lender10 | 04/05/2006 | 100 | 3.5% | 4% | 4.8% | 6.2% |
The Borrower's data would look like this:
| Lender | Rate | Amount | |
| Contract1 | Lender1 | 2.5% | 10 |
| Contract2 | Lender2 | 1.5% | 10 |
| Contract3 | Lender3 | 3% | 10 |
| Contract4 | Lender5 | 2% | 10 |
| Contract5 | Lender7 | 2.5% | 10 |
| Average | 2.3% |
So the borrower is happy because he's paying on average 2.3% and the lenders are happy because they've started to lend out at the rates they want to lend at.
Borrower2 comes in and wants to borrow £60 in the B24 market. Lenders 4 and 6 aren't offering in this market, so Borrower2 won't be borrowing from them at all. Once again, the borrower is matched against lenders in order of when they put their money in to the market and the rates they are offering - Lender 2, Lender 5, Lender 1, Lender 7, Lender 9 and Lender 3
| Date | Amount | A12 | A24 | B12 | B24 | |
| Lender1 | 01/05/2006 | 80 | 2.5% | 3% | 3.5% | 4% |
| Lender2 | 01/05/2006 | 30 | 1.5% | 1.6% | 1.7% | 1.8% |
| Lender3 | 01/05/2006 | 180 | 3% | 4% | 5% | 6% |
| Lender4 | 02/05/2006 | 200 | 4.2% | 4.2% | ||
| Lender5 | 02/05/2006 | 80 | 2% | 2.2% | 2.4% | 2.6% |
| Lender6 | 03/05/2006 | 70 | 5% | 5.5% | 6.5% | |
| Lender7 | 04/05/2006 | 0 | 2.5% | 3% | 3.5% | 4% |
| Lender8 | 04/05/2006 | 80 | 10% | 12% | 14% | 16% |
| Lender9 | 04/05/2006 | 490 | 4.5% | 4.8% | 5.2% | 5.6% |
| Lender10 | 04/05/2006 | 100 | 3.5% | 4% | 4.8% | 6.2% |
The Borrower's data would look like this:
Borrower1:
| Lender | Rate | Amount | |
| Contract1 | Lender1 | 2.5% | 10 |
| Contract2 | Lender2 | 1.5% | 10 |
| Contract3 | Lender3 | 3% | 10 |
| Contract4 | Lender5 | 2% | 10 |
| Contract5 | Lender7 | 2.5% | 10 |
| Average | 2.3% |
Borrower2:
| Lender | Rate | Amount | |
| Contract1 | Lender1 | 4% | 10 |
| Contract2 | Lender2 | 1.8% | 10 |
| Contract3 | Lender3 | 6% | 10 |
| Contract4 | Lender5 | 2.6% | 10 |
| Contract5 | Lender7 | 4% | 10 |
| Contract6 | Lender9 | 5.6% | 10 |
| Average | 4% |
Borrower1 sets a repayment date of the 1st, and Borrower2 a repayment date of the 10th. Borrower1's likely first repayment date is the 1st July (Not 1st June because the first repayment date is always more than a month ahead - and lenders earn extra interest during this period) but since this is a Saturday the money will be taken from his account on the 3rd. It will appear back in the lenders' holding accounts on the 5th.
The borrower pays back a fixed amount each month (just as he would with any other loan) and Zopa allocates it proportionally to each lender, so that at the end of the loan term each lender will have received back his capital and the relevant interest charged.
The Zopa lending screens will tell the lender how much of each repayment is capital and how much is interest.
Once a lender has received £10 back in repayments he can either transfer that money out of Zopa (i.e. back into his own account) or he can put it back into the pot to relend it.
Lenders should bear in mind that they are only earning their requested rate of interest on money that is lent out to borrowers. So, if you lend out £12 for 12 months at 5% your borrower pays back £1 a month in capital. Interest is charged monthly, and on 5% that works out to 0.41% a month.
| Interest | Capital | Total Payment Received | |
| 12 | 0.0492 | 1 | 1.0492 |
| 11 | 0.0451 | 1 | 1.0451 |
| 10 | 0.041 | 1 | 1.041 |
| 9 | 0.0369 | 1 | 1.0369 |
| 8 | 0.0328 | 1 | 1.0328 |
| 7 | 0.0287 | 1 | 1.0287 |
| 6 | 0.0246 | 1 | 1.0246 |
| 5 | 0.0205 | 1 | 1.0205 |
| 4 | 0.0164 | 1 | 1.0164 |
| 3 | 0.0123 | 1 | 1.0123 |
| 2 | 0.0082 | 1 | 1.0082 |
| 1 | 0.0041 | 1 | 1.0041 |
| 0.3198 | 12.3198 |
Of course in the real world the borrower pays back the same amount each month, and the split between capital and interest shifts a bit as the payments go on, but this is only supposed to be a simple example. And as you can see, you've only earned 32p interest, whereas at first glance you might think 5% interest on £12 is 60p. This is why you need to relend your money to get the maximum earnings from it over time.
[Note: Anyone want to write an article on Zopa lending tactics, using the spreadsheets and any other information made available to decide what rates to offer your money at?]
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