What is your view on Zopa?

datostar

I'm a Zopa lender in a small way. I've been putting in £100 a month for the last 18 months. Up to the last 3 months or so all has gone well and I've been happy with the overall interest rate and the speed of re-lending. However, recently the average interest rates seem to have dropped significantly (evidently some philanthropic lenders are offering at 1%) and it is getting more difficult to lend at what I regard to be an adequate return given Zopa's 1% charge; tax implications and the risk of bad debt. I've had a sequence of loans paid off early, in some cases within a month of taking them out. The return on them is negligible. This implies, perhaps, that borrowers are finding cheaper alternatives. Of most concern is the current very slow rate of re-lending. I've had £50 bouncing back and forth for nearly a month now. I'm within the Zone of Possible Agreement in each category, albeit at the upper end. Possibly I'm being significantly undercut by other lenders or a lot of potential borrowers are being rejected by Zopa underwriters or finding cheaper alternatives and not taking up offers.
I've stopped putting new money in and intend to start withdrawing from the holding account rather than keep adding to money on offer but not lent out.
I'm certainly not desperate to get out of Zopa but at the moment it's just not a good investment for me.

pqrdef

Zopa is approaching the point where most of its lending can be financed from repayments and it doesn't need much from new lenders.

It will always need some new lenders, to replace departing lenders. But at the same time, it pushes them to the back of the queue and makes things difficult for them.

psychic_teabag

Much the same story for me. I've stopped putting new money in, but repayments are starting to build up in my holding account since I'm unable to make new loans. Will probably start taking money out since it doesn't earn any interest in the holding account.

jamesd

You might consider taking the money out around the tenth of the month. That's a little after all of the end and start of the month payments have arrived so you won't have that money sitting around for long. Just doing it once a month unless the amounts are large is friendly for Zopa costs.

dclaxton

Hi all,

I signed up to Zopa a year ago with £300 as a trail. For a while everything was going great and I could seen my earnings going up. As soon as I had made £10 I instantly had a late payment for exactly £10 (a new borrower that hasn't paid) this has since become a bad debt. I knew the risks when joining so I let it go as a learning curve, I have only just got to the stage of being £7.64 in profit and now have another bad debt of £8.44 so I am now losing money.

I fully read and understood the risks and only leant my money to borrowers who were either A* or A. Has anyone else had this same situation or am I just very unlucky.

I think I'll cut my losses and leave Zopa, as it currently stands I'd be about £10 putting it in a savings account.

jamesd

Bad debt is a fact of life with any lending system so it's not surprising to have some. With most of my lending in 2008 and early 2009 I still haven't had even one A* or A loan become a bad debt so you appear to have been unfortunate, unless Zopa has changed lending criteria. However it's worth noting that public sector budget cuts could mean that those in apparently stable employment do start to suffer more and that might cause or partly explain some change.

My own stats are a total of £6208 lent out and £509 of bad debt. But this is with extensive use of the C and Y markets and some Listings back before the tax treatment of bad debt was known. C60 at the time I did my lending did dramatically worse than expected, with bad debt currently more than twice even the current increased bad debt allowance for that market and perhaps three times the allowance used at the time the loans were made. Coupled with the poor tax treatment of bad debt that made it very bad news, at maybe five times the expected effect for higher rate tax payers once the tax treatment became known. I allowed very generous safety margins but five times exceeded even those.

With some £1,200 in interest from borrowers this means I'm still in profit even after the tax treatment of bad debt (say 40% tax payer, interest after tax £720 from which £509 of bad debt deducted). Though I was lending at rates that are completely unobtainable today. And I use pension contributions to try to avoid actually paying any higher rate tax.

My current default counts, by individual borrowers not loan contracts (I lend at several rates to many borrowers), are currently:

A*: none
A: none + 4 in arrangements
B: 3 + 1 in arrangement
C: 4 + 5 in arrangement
Y: 2
Listings: 3 + 1 in collections

Those in arrangement often don't become defaults. Arrangements to pay less are where those who lose their job end up being initially and people do often find another job.

To give some idea of just how big my safety margins were and what rates were obtainable in the past, the average interest rate for all of my defaulted loans is 17.05%. For currently active (withdrawn) loans it's 14.21%.

pqrdef

dclaxton wrote: »

Has anyone else had this same situation or am I just very unlucky.

You are very unlucky, though not unique.

The "laws of averages" only kick in with large numbers. With a small number of loans, bad debt performance is just a gamble. In A*36 the likeliest outcome is that you get no bad debts at all and a return about 0.5% better than average. If you're unlucky, you'll get one bad debt in a year, but this will knock a very big hole in the low interest rates now available. If you're really unlucky, you'll get two bad debts in a year and make a loss.