Zopa - what are the realistic returns if you lend?

amcluesent

Since 2007 for me -

A* - 5.63%
A - 6.56%
B - 8.4%
C - 8.93%

And no bad debts. However, most of the loans were before they imposed 36 or 60 month loans. Since that time, I've suspended lending offers and repaid cash has been taken out of Zopa. IMHO, the stories of Y loans and listings are bad news.

LeeSouthEast

No bad debt for me (yet... anyway). Currently running at 9%.

jamesd

8.1% after tax, fee and write offs for me. 14.34% before deduction of Zopa fee and bad debt. Don't expect to get over 14% gross lending rates at the moment. That took careful selection of when to lend and now is a poor time to be lending.

2.95% of current lent amount is written off defaults and with a 0.5% fee that reduces after fee and write offs to 10.89% before tax. After 20% tax that comes to 8.1%. Write off has to be deducted after deduction of tax, so the reduction is greater than expected. In addition there's another around 3% in arrangement or collections and some of that will default and be written off. This lending is over about a year.

14.5% of my current outstanding lending is to Listings, 11% to Y, 17% to C, 21% B, 29% A and 7.6% to A*. 75% is on 60 month loans.

8.1% is not very attractive for the tie-in involved compared to alternative ways of investing money. Lower risk corporate bond funds can be had that pay that or more before tax, without tie-in.

Jonbvn

jamesd wrote: »

8.1% is not very attractive for the tie-in involved compared to alternative ways of investing money. Lower risk corporate bond funds can be had that pay that or more before tax, without tie-in.

And you can put the bonds in an ISA and get the income tax-free.

crazihos

Thanks everyone - theres a lot to think about, it sounds quite good but not as rosy as I first thought, I dont like the idea of having money left unlended and having to keep a constant eye one it.

It sounds like theres more involved than I thought.

8.1% is not very attractive for the tie-in involved compared to alternative ways of investing money. Lower risk corporate bond funds can be had that pay that or more before tax, without tie-in.

James - just wonderering if you ahve a link to a Lower risk corporate bond funds, I know some bonds but though they were risky and havnt found any that give 8%+ at the moment?

Cheers

Russ

negg

I'm running at a high rate bad debt and Zopa do nothing to try to recover these debts, contrary to their own terms and conditions which state loans will be sold on to debt recovery companies and you will receive a percentage of the outstanding amount.

That been said, I am still running at about 2.5% interest overall, even though most of the loans are over 10% interest rate but due to bad debt...

Never ever put money in that you cannot afford to lose.

Paul_Herring

Jonbvn wrote: »

And you can put the bonds in an ISA and get the income tax-free.

But ISA's are soooo boring

I've only got about 3-4% of my 'portfolio' in Zopa, so it's still just a 'hobby' as someone upthread pointed out.

LeeSouthEast

negg wrote: »

Never ever put money in that you cannot afford to lose.

Sound advice for any investment vehicle. :T

jamesd

crazihos wrote: »

James - just wonderering if you ahve a link to a Lower risk corporate bond funds, I know some bonds but though they were risky and havnt found any that give 8%+ at the moment?

Try the various bond types that are given on Trustnet. Strategic bond is a potentially interesting sector. Not necessarily in that one but there are some enhanced bond funds that pay as much as 12%, taking some of that out of capital and potentially decreasing in capital value if there's insufficient growth.

You might also look at funds like Invesco Perpetual Monthly Income, which has a small proportion of equities as well as bonds. Or Jupiter Distribution which has more equities and is expected to yield around 7.8% and has a greater prospect of capital growth because of the higher equity component.

There are various types of bond fund and they have different levels of risk, with high yield and strategic bond types the ones with the highest average level of risk but also the highest average return.

All of them are likely to be lower risk than lending via Zopa, though the capital value variation is more obvious, in part because they use daily pricing and you can exit at any time, while lending spreads things out much more so you see less day to day variation, and mostly negative variation, though occasionally those with a written off loan will pay more back.

I'll still look to lend more via Zopa, but not at the moment because the rates are too low to be worthwhile compared to the alternatives. No reason to jump in at a bad time when I can be patient instead.

Gorgeous_George

I focus on the A*/A and 36 months markets so my returns are lower but without the agony of bad debt.

I have almost 90% in loans over 36 months or less and 90% in A* or A. My return should be 8.35% gross and probably 6.5% or thereabouts after fees and bad debt. As a basic rate taxpayer I think that's a reasonable return though not enough to retire on.

It is fun and I have put money in Zopa in preference to an ISA this year - although I may crack and use my ISA allowance nearer the end of the year. On the other hand, I might add a bit more to Zopa - it can be addictive.

GG