Zopa. Neither a borrower nor a lender be!

Loaded_Bachelor

apang,

I take your point but also feel that it is trying to suggest an endorsement by inference. Using the phrase "Money Saving Expert" is a clear inference of an endorsement, in my opinion.

The writer is obviously pro Zopa and is clearly name dropping the name of a widely respected financial journalist; I would think that most readers would assume that the financial jounalist was positive about it, not negative as he actually is.

e.g. If I said that you must go and see a great movie I am recommending, adding that I saw it reviewed by Johnathan Ross on Film 2005 you would assume that he had given it a good review, wouldn't you? However, if you subsequently learned that he in fact gave the movie a bad review I think you might feel a little aggrieved.

Ted_Bloke

Something newish on Zopa I've not seen commented on these pages nor anywhere else is that since at least October it's been offering to subsidise lenders and borrowers. If you offer to lend for 36 months at less than 4.8% they will give a 2% subsidy that gives you 6.8%. If one can believe this will really happen it could make the difference between a deal that doesn't justify the lender's risk and one that does. At least twice so far this offer has been extended by a month. Only it's not obvious how it can work. It leaves them waiving their 1% fee while lending at 4.8% money they are supposed to pay back to their lender members at 6.8% - per year for 3 years, that's what it seems to say - how can this work? I can think of several ways, not all of them necessarily reassuring for Zopa lenders. Could we be told by someone from Zopa? And by someone not from Zopa?

Ted_Bloke

My previous query has been here for a week. Odd to me after all the talk about Zopa that no-one comes back to comment when there is a substantial novelty.

Previously Zopa itself chipped in to answer misconceptions. So I'll provoke them by wondering if they're making an unsustainable offer because they're in difficulties and desperate? When you're that way you can't think about tomorrow.

Or maybe on the other hand it is such a rare and fantastic offer in a borrowers' market that lenders are keeping quiet about it, not wanting to increase competition of lenders?

With apologies to Jeremy Paxman, come on I need an answer.

Xbigman

I think most of us have this lot down as 'not worth it' already. Discounts which are enough to zero their profit margins smacks of desperation to me, but I really couldn't care less. I wouldn't want deal with them if I needed money, and I certainly wouldn't deal with them if I had money.
Regards



X

Ted_Bloke

Thanks Xbigman, that's very unreassuring (for lenders. I don't see what borrowers have to lose, and I'd sure have liked conditions like theirs when I bought my first car many years ago.)

But as it stands now, Zopa management is putatively desperate, since apparently they have nothing to say for themselves.

But where else would you look for nearly 7% safe for locked up or semi-locked up money, assuming ISA allowance already used up? (I guess you'll say you're not going to get that really from Zopa because of defaulting.)

newmoneyuser

I started to research Zopa as a lender before finding this site and have the following comments to added to this thread (as a lender)

Lack of interest on unassigned funds

They are currently saying that they do not earn any interest on spare funds, but expect to have this in place next month. When they have this in place the interest will be passed on to the lenders. They have not stated the level of interest or the exact start date.

Status of funds if the Zopa fails

The web site explains the status of funds loaned out, but not unassigned funds. Via email they have stated that such funds are held outside of the company and so are not treated as part of its assets. This means they should be safe, but it would be nice if they would prove it somehow.

Bad debts

There's been a lot of comments these forums about bad debt level, without much firm information being posting. The only information I have found so far on the subject comes from HSBC's full 2004 report which shows that for the bank their General and specific bad and doubtful debt provisions work out at 1.3% across their whole loan book. People have also missed out the fact that bad debts at Zopa are accounted for before tax not after, so If you are a tax payer you basically get tax relief on the loss.

“just put your money in a bond fund and earn 7+%”

Someone made the above comment and its valid investment choice, but it does show the one thing that Zopa can offer that bond based funds can not. Any increase in interest rates is likely to cause a rise in the level of debt in both the bond and personal loan markets, but any long dated bond will also drop in value as its rate of return increases to meet current market rates. This in turn reduces the fund value.


So where does Zopa fit, well if you are making full use of other investment prospects it an option but there are a lot of things to invest in first. As for Zopa's long term future, I can't comment as there is no published information about the company, but I plan to commit a small amount to trying it. As I find out more (good and bad) I'll post more details.

newmoneyuser

Zopa has now updated there system and they now pay 3.25% on
unallocated funds. This is not a great amount but the amount RBS
offers is going to based on the funds in the account (which is low)
and the number of transactions (which will be high).

---

Zopa is constantly working to improve the service that it provides to its Members – to make the experience of borrowing and lending money as rewarding as possible, both financially and socially.

I am delighted to announce the following important new developments:

1. You now earn interest on your unlent money
While you wait for your money to be lent to Zopa borrowers, it is held in a segregated bank account with the Royal Bank of Scotland, (RBS). RBS has agreed that from 18/01/2006 money held in this account will bear interest – which is great news. It’s also a strong endorsement from RBS of their commitment to Zopa and its members.

The rate RBS has agreed to is 1.25% below the Bank of England base rate – so from 18/01/2006 interest will begin to be paid at 3.25% (correct at the time of writing) and will vary with any change to the Bank of England’s base rate.

This means that your money is earning interest from the moment that Zopa receives it, to the minute that it is sent to borrowers.

As explained in the Zopa Principles, money you send to Zopa does not form part of Zopa’s assets; nor does Zopa receive any of the interest on it.

What you need to do next: You do not have to do anything to acquire this interest - if you have money in your holding account, or on offer to borrowers, you will automatically receive the interest paid by RBS. The interest from RBS is paid monthly on the 1st of each month.

Paul_Herring

Are they getting desparate to get people to join or just trying to get more lenders to get greater capital together?

newmoneyuser

Well my funds were became available on Thursday. The first thing to be aware off is that you have to commit at least £500 when offering funds to the market.

When you offer funds you offer the same funds into as many or as few of the different markets as you like, and for each market you can select different rates of return. This gives you the chance to lend quicker than if you were limited to a single market.

The configuration I have gone for is to make 2 £500 offers into the market place, each of which will offer £10 to any one borrower, with the first to provide what I consider a fair rate of return and the second with a rate of return set a little higher. This means that for any one who wishes to borrow a large sum, I may end up offering £20, but at a higher overall rate of return than if I place all my funds into the market at the lower rate.

So far £140 has been allocated to possible loans that have not yet been processed. £110 from my first offer and £30 from my higher offer. It does not look like Zopa is that fast at agreeing loans as none of the loans have been completed.

Note about other lenders.

As an open market people can place funds at whatever rate they wish. This has resulted in some people offering funds as low as 4% and others as high as 20%. The people offering 4% must have their own reasons for providing such cheap funds, but the people offering at 20% are hoping that their funds will be allocated to people who want to borrow large sums near to maximum amount the market can offer.

MSE_Martin

Just for info i'm looing to meet Zopa again - their rate for lower end loans has improved greatly and can undercut the markets cheapest for some things. Im going to investigate and have a look at whether it is worth incorporating for borrowers