Lending with Zopa

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  • jamesd
    jamesd Posts: 26,103
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    DireEmblem, those are one of the alternative options. Another is directly held retail corporate bonds, some of which are offering rates above 8%. Click on the GRY column twice to sort by gross redemption yield highest to lowest. Or on Current Yield to do the same for running yield. Gross redemption yield includes the effect of capital return at the end of the bond's term, current yield doesn't. Some examples:

    Enterprise Inns 2018: 9.319%, 13.323% (end date, running, redemption yields)
    Co-op bank 2099: 8.548%, 8.550%
    RSA Insurance 2099: 8.543%, 8.543%
    Aviva 2036: 7.695%, 8.044%
    Legal & General 2099: 7.209%, 7.212%

    All of those are eligible to be held in a S&S ISA so the income can be tax free and there's no doubt at all that they are more credit-worthy than peer to peer consumer borrowers.

    Moving on from them the next option might be PIBS from building societies and former building societies.

    If you want running yields over 10% you can get those from Lloyds TSB (LBG Capital or Lloyds TSB Bank). Not really likely that the UK government will let it default, but it's possible.

    For all of those you'd want to spread the money around to diversify in case one or more of the companies does end up unable to repay. Enterprise Inns is significantly more risky than some of the others, for example.
  • 00ec25
    00ec25 Posts: 9,123
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    edited 1 January 2012 at 6:43PM
    pqrdef wrote: »
    Statistical bad debt rates only become usefully indicative if you make a rather large number of loans, and even then, they're still subject to future economic conditions..
    agreed - however you have to base the investment decision on some sort of info and this is all you've got to go on
    personally I have (at the moment) had well below the statistical average
    pqrdef wrote: »
    Most lenders should probably regard Zopa as analogous to Premium Bonds, where the return you get is just pot luck, at least until you put in £10K+.

    that is a bit too far - ZOPA is no where near as random as the pure chance that is represented by PB, after all with ZIOPA no one will experiecne 100% bad debt so you will always get some sort of return, with PB it's either win or lose - however it is all too true that no two people on Zopa will achieve the same rate of return as each person will have a unique bad debt experience.
  • celtic123
    celtic123 Posts: 116 Forumite
    better off with corporate bonds mate
  • Kitte
    Kitte Posts: 36 Forumite
    I opened a Zopa account just under two years ago and put on a smallish amount of money to 'test the water' for a year or so. I promptly forgot about it and only remembered to check today!

    I only lent to A*/A markets.

    The rate I have achieved to date is 6.63% before tax. This includes all fees, bad debt (I've not had any) etc.

    I think ultimately it probably is worth putting your money elsewhere, given the level of risk, but that said it is far more fun than bunging the money in a savings account.

    I don't see Zopa as an alternative location for my hard earned savings, I do see it as a bit of a fun way to 'invest' a reasonably small amount of money and then treat it as a game. It is more 'human' than putting money in a bank and I like to see who and why I am lending the money. Most of my loans are for people 'oop north' buying cars!

    My intention is to start putting £50/month or so onto it and then if that goes well scale it up to £100/month but I can't see myself putting any more than that at all.
  • Totton
    Totton Posts: 981 Forumite
    Kitte wrote: »
    I think ultimately it probably is worth putting your money elsewhere, given the level of risk, but that said it is far more fun than bunging the money in a savings account.

    Not knocking it but am intrigued to know what the 'fun' part was if you had forgot about the money and haven't remembered about it for a year or so?

    Regards,
    Mickey
  • jamesd
    jamesd Posts: 26,103
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    edited 2 January 2012 at 6:50AM
    Kitte wrote: »
    Most of my loans are for people 'oop north' buying cars!
    Who say they are using it for buying cars. :) Sadly it isn't necessarily true. Even those saying debt consolidation aren't necessarily telling the truth - some just borrow for that reason, spend the money to service existing debts and/or for other spending, then default a few months later. OK to look at the reasons given but don't necessarily believe them...

    It can be entertaining to try to optimise returns but at the moment there are steep cliffs where you either lend at a low rate or don't get included in loans at all, so there's very limited scope for that sort of thing.

    One of the less appealing things is that with the routine early repayments of loans Zopa quite often ends up getting more than half of all of the costs of a loan that a borrower pays. Depends on specific amounts of loan, the Zopa fee incurred and how early the loan is repaid. It's particularly ironic given the claim to be cutting out the middle men that the half of the money is sometimes going to the middle men. At least the reduced Zopa fees for some loan sizes make this less likely sometimes, so that's a welcome improvement.
    Kitte wrote: »
    My intention is to start putting £50/month or so onto it and then if that goes well scale it up to £100/month but I can't see myself putting any more than that at all.
    Just be sure you use the FD 8% first.

    If you want to learn a more useful life skill and aren't yet an experienced investor, go with the S&S ISA investing instead. That'll help you to learn more about investing in general and help with things like growing a nice pension pot as well.
  • I looked at this and a few others and caste them aside. Like others have mentioned, clowns lending money to chancers at ludicrously low rates made it impossible to achieve a favourable risk weighted return.

    Its like you have granny on there lending out the pension she does not need because she is loaded at 6% or some other such nonsense.
  • Kitte
    Kitte Posts: 36 Forumite
    jamesd wrote: »
    Who say they are using it for buying cars. :) Sadly it isn't necessarily true. Even those saying debt consolidation aren't necessarily telling the truth - some just borrow for that reason, spend the money to service existing debts and/or for other spending, then default a few months later. OK to look at the reasons given but don't necessarily believe them...

    It can be entertaining to try to optimise returns but at the moment there are steep cliffs where you either lend at a low rate or don't get included in loans at all, so there's very limited scope for that sort of thing.

    One of the less appealing things is that with the routine early repayments of loans Zopa quite often ends up getting more than half of all of the costs of a loan that a borrower pays. Depends on specific amounts of loan, the Zopa fee incurred and how early the loan is repaid. It's particularly ironic given the claim to be cutting out the middle men that the half of the money is sometimes going to the middle men. At least the reduced Zopa fees for some loan sizes make this less likely sometimes, so that's a welcome improvement.

    Just be sure you use the FD 8% first.

    If you want to learn a more useful life skill and aren't yet an experienced investor, go with the S&S ISA investing instead. That'll help you to learn more about investing in general and help with things like growing a nice pension pot as well.

    Jamesd, you're absolutely right of course. My main point was that if anything, Zopa should be a bit of fun - something that you can put a very small amount into, have a bit of a play with - but something that doesn't require an immense amount of fiddling with once it's set up. I'd never use it as a genuine investment vehicle or even part of, more of a (nerdy) game as I like playing with figures and statistics (I'm a financial analyst by trade).

    Curious about the FD 8%? I presume you mean First Direct's 8% RS accounts? If so, I have two of these already saving the maximum £300pm each and have maxxed out my (cash) ISA allowances.

    S&S Investment is something on my list to investigate for 2012 as it happens! I've got a practice account that I'm playing with now, but I've never invested any money in shares before! :cool:
  • Kitte
    Kitte Posts: 36 Forumite
    Totton wrote: »
    Not knocking it but am intrigued to know what the 'fun' part was if you had forgot about the money and haven't remembered about it for a year or so?

    Regards,
    Mickey

    I probably class 'fun' as something different to most people. I enjoyed building a fairly complex spreadsheet to take into account all the variables before deciding to put some money on it. Once I did, I monitored it for about a month or so, then life got in the way :D
  • jamesd
    jamesd Posts: 26,103
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    Yes, the First Direct regular saver account.

    For your Zopa analysis if you were using the matches spreadsheet you might also need to allow for the effect of acceptance rates. When lending actively I was finding that more than 80% of loan applications that I participated in were being declined. That'll vary with market and rates. Mainly it means that estimates of lending speed at rates higher than typically matched will be lower than expected. The effect matters less now because the rate variation within a loan is much lower than it has been at some times in the past.

    Share and fund investing has lots of scope for financial analysts to have fun. :)
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