Peer to Peer Lending

daniellebel

Hi! please redirect me if it is better to post this else where...

has anyone used peer to peer lending services? been reading about zopa lately, sounds like a way of borrowing / investing that is new (to me anyway!). Welcome all thoughts.

iluvmarmite

You have to have an impecible credit score for zoppa

paddyrg

Ratesetter.com - superprime customers only, but very cheap borrowing. Anonymous, pure loan/repay.
Uk.zopa.com - have tiered lending, rate will depend on how people assess you. You can spin a story, see who bites.
Yes-secure - takes subprime, very social networky.

27col

I've got £500 invested in Zopa. Like many other Zopa lenders I would not put any more money in if I thought that they were being anything other than very choosy about who we lend to.

fieldreg

I have looked at Zopa from a lending / investing point of view. I just wonder looking at the current rates of return from Zopa based on tieing the investment up for 3-5 years whether this is actually that much better than fixed rate savings...... if conventional interest rates rise does the return from Zopa lending rise as well so Zopa will always be better return than most 3-5 years savings rates...... or is it just the case at the moment its particularly good because bank of england interest rates are so exceptionally low?.... anyone have a view on this? Cheers

paddyrg

Fieldreg, there is a massive DANGER with companies like Ratesetter, zopa, yes-secure encouraging peer lending as lending decisions should be well considered and understood, not seen as an alternative to savings. You could lose the lot tomorrow. You have ZERO protection, unlike the banks being underwritten. It must be money you can afford to lose.

I say this, because unsophisticated investors just see the headline rate, and throw their cash in. This depresses rates to the point where the risk can outweigh the benefit. Would I lend to some of the "C" band on zopa? Heck no. Some of the loans request board where people spin a tale for direct lending are scary. There will be shirts lost this way. And if you are asking if those interest rates are fixed/variable it suggests to me that you do not fully understand what you may just be about to risk large sums of money in. You need to understand it deeply, and you need to understand the risk figures, and weigh them up against the extra risk of defaults should the base rate rise.

So back to your question - no, those are fixed rate loans. Ratesetter do a rolling variable loan scheme (currently around 4%) where you can cash out at any point and can vary the rate you offer, and see if people want to borrow at that rate. But again, rates are held low by people seeing it as an alternative to savings as opposed to unregulated usury. Be VERY careful what you offer, and make sure you understand exactly what you are getting into.


Edit - just thought of an example of why to be careful and not follow the herd rates-wise... Smoking kills 1 in 3 of smokers, yet many smokers also enter the lottery with a 1 in 14 million chance of winning. People are terrible at understanding risk and probabilities! And don't forget, as the FSA has no touch on these companies, who knows how well they are run? If I wanted to set up a Ponzi scheme right now, it would look exactly like one of these companies to the outside world. Not that they are, but how could you tell?

fieldreg

thanks for the view. I would understand the risks, diversity and default rates before any of this kind of investment. I gather folks start with a few hundred to understand the system and assess the moral hazards then maybe decide to go higher. I was wondering whether this asset class was half way between conventional savings and bonds/equities which I have quite a lot of experience of. I havent got beyond the Zopa public webpages yet. May stick to the conventional financial markets.

paddyrg

If you can crunch figures and have discretionary investment money (ie can afford to lose it/understand risk-reward) then go for it. Ratesetter, zopa and yes-secure operate at different places in the market and have different securities, sogive them all a good read.

Gorgeous_George

Give it a go.

I earn just over £50 per month in interest at Zopa with £7.5K loaned to mainly low-risk borrowers. I find it interesting, fun and motivational. There are fees, potential losses and other risks to consider.

Zopa has been around for 6 years, made loans of over £125M and continues to grow. Bad debt is low at just 0.7% since they started in 2005. Your money can be lent in chunks of £10 per borrower so if one loan defaults you will have many more that don't. I have 3 late payers from 832 borrowers in the A* or A market owing less than £25 between them. Two of these borrowers are making partial payments agreed with Zopa.

There are 5 markets, A*, A, B, C and Y. Borrowers are assigned to one of these depending on their credit history, affordabilty of the loan etc., and they can apply for a loan over 3 or 5 years. You choose which market/term to offer your money to and the repayments hit your account as they are made. I receive £290 per month in repayments with my investment split 60/40 between the 3 and 5 year terms respectively. My loanbook is heavily weighted towards A* and A markets.

As well as the markets there are Listings. IMHO these are best avoided especially for the newbie lender. In Listings, wannabe borrowers spin that yarn and you get to play underwriter. This is, IMO, a specialised skill and best left to the professionals.

If you were interested I'd recommend that you start with a couple of hundred pounds and make your own mind up when to add to your investment. It is important to remember that you will get your money back as the loan repayments are made although there is an option called Rapid Return which allows to exit earlier if the need arises (subject to certain limitations).

I love it. If it had been around when I was younger I may have been more interested in saving.

On the other hand, NSandI is likely to be a good home for you money and I have ISAs, shares and other investments as well. Zopa is more fun than any of them.

GG

fieldreg

thanks for the extra info. :)I also found a couple of youtube videos about Zopa and the other similar sites showing the practicalities of how this works so I'm a bit better informed now. I'll maybe give it a go with small initial and diversified lending, nothing I cant afford to lose. I'm pretty familiar with risk concepts in finance. Incidentally I also came across the microlending concept for charitable donations which is kinda interesting... cheers.

grumpycrab

Anybody know why yes-secure rates are so high? Are they higher risk than other p-p'ers?

EDIT: Think I've answered this myself. yes-secure loans to sub-prime market IE prime borrowing markets(A*, A, B)as well as sub-prime (C, D, E).