Zopa in the current climate

neilp

I was wondering what people's thoughts are on Zopa. I have looked into it in the past, and think it is a very interesting concept, but have opted not to put in money because returns were similar to (if not below) top paying savings accounts. Following recent rate cuts this is no longer the case, which makes me wonder whether it is now far more attactive (though I realise the risk of defaults will rise as recession deepens).

Lokolo

Well with rates really low I reckon people will be going to banks etc. to get money.... however.... with banks less likely to lend people money it may be a great oppurtunity...!

Reaper

The big problem is defaults. Somebody with a seemingly good credit score could end up defaulting if they lose their job in the recession. As with all things it is risk vs reward. The rewards for lending through Zopa are curently looking good but there has been a corresponding rise in risk.

I,_Brian

I was tempted, but am concerned about what protections - if any - are there for lenders.

Banks may be over-strict, but at least they have a vetting procedure. However, I don't see that on Zopa - and I see plenty of opportunity for lenders to get scammed.

Once the organised gangs latch onto Zopa, I can't see it lasting very long.

Also, worth considering how you know a genuine borrower won't file bankruptcy.

Seems it's all caveat emptor, and little assurance.

2c.

neilp

Thanks - these are good points. I guess the key issue is how reliable the credit reference agencies are, particulalry in a downturn/recession. One of the big lessons of the US sub-prime episode has been showing the limitations of credit rating agencies for institutional debt. I wonder whether the same flaws might be exposed at a personal level.

I would be pretty confident about Zopa's vetting procedures, but the point about risk of organised criminal fraud is also a very good one. Given that banks have fallen victim to this, I suspect Zopa is vulnerable.

amcluesent

>The big problem is defaults<

Yep. I switched off automatic relending some months back. The purpose of loans was dominated by buying a car and home improvement. If the bad debt doesn't get silly, I'll start opening the lending again.

SpinnerB

Considering the market right now Zopa seems like a good one ... so far I've got only one borrower who is struggling with making payments on date, but they catch up ... so I'm about 65p down ... They appear to make good later on in the month, & I have the benefit of that warm feeling that I am helping people, and yet I lend on higher rates than I could get on a savings account. This has to be understood as a high risk GAMBLE, you are playing being a bank, people will default, get over it ..., situations are going to be hard out there... but at least Zopa deal with it rather than you having to ask a friend for the loan back ... but that's another story ...

ragingbass

I guess it depends on what your attitude towards risk is? I'm going to give ZOPA a try because I like the concept, but I'm only going to invest very small amounts and spread across multiple lenders. There is the risk of defaults, and no matter how stringent the credit scoring and your own screening for lenders is, the risk is still there.

So, you could lend to say the Young market and get potentially great returns, or they could default and you lose your investment.

But isn't that like everything in life? You could go to a casino and stick it all on Black

Jonbvn

I,_Brian wrote: »

Banks may be over-strict, but at least they have a vetting procedure. However, I don't see that on Zopa - and I see plenty of opportunity for lenders to get scammed.

Once the organised gangs latch onto Zopa, I can't see it lasting very long.

You obviously haven't used ZOPA, since the above is completely wrong.

ZOPA have a very thorough vetting system. They even call your employer if you wish to borrow.

I,_Brian

Jonbvn wrote: »

You obviously haven't used ZOPA, since the above is completely wrong.

ZOPA have a very thorough vetting system. They even call your employer if you wish to borrow.

No, I haven't used Zopa, and I remain hesitant to do so.

In case anyone hasn't noticed, there's a credit crisis on because a high proportion of lending is going bad, and there's no way for lenders to recoup their lending in full. How does Zopa address this, other than spread the risk of default across many loan providers, instead of just a few big institutions?

Calling an employer is all well and good, but two things:

1. Setting up a fake employer is easy (anyone else heard of Carousel fraud?)
2. Employers are dropping jobs like hotcakes. Being employed one week is no guarantee of employment through the term - there are plenty of highly-skilled workers out of a job

As someone stated above, "treat as a high risk gamble", I have to agree.

Who are these people anyway who are looking to make home improvements and buy cars in a credit crunch, and are they really credit worthy enough to have got lending at a bank, or deemed too much a risk?

I don't mean to rain on Zopa's parade - I'm just not seeing assurances enough to join as a lender.

2c.

Jonbvn

I,_Brian wrote: »

No, I haven't used Zopa, and I remain hesitant to do so.

In case anyone hasn't noticed, there's a credit crisis on because a high proportion of lending is going bad, and there's no way for lenders to recoup their lending in full.

Calling an employer is all well and good, but two things:

1. Setting up a fake employer is easy (anyone else heard of Carousel fraud?)
2. Employers are dropping jobs like hotcakes. Being employed one week is no guarantee of employment through the term - there are plenty of highly-skilled workers out of a job

As someone stated above, "treat as a high risk gamble", I have to agree.

Who are these people anyway who are looking to make home improvements and buy cars in a credit crunch, and are they really credit worthy enough to have got lending at a bank, or deemed too much a risk?

I don't mean to rain on Zopa's parade - I'm just not seeing assurances enough to join as a lender.

2c.

I can't agree with you that ZOPA is more open to fraudsters than banks. Historically, ZOPA has a much lower level of default than bank lending. Most borrowers go to ZOPA because they get a better rate than the banks.

Of course some borrowers will default, but many won't. The key to addressing this as a lender is diversify - i.e. lend small amounts to different lenders.

Of course it is higher risk than a savings account, but the returns a that much higher (I'm getting 12%+). As always, higher returns equate to higher risk.