Zopa. Neither a borrower nor a lender be!

Deemy

Taylumbo wrote:

Hello

I have spotted a massive problem in the ZOPA.com theory which bascially means you have to earn twice the interest rate than you currently do to make it worth while (https://www.zopa.com) !
I thought I should point it out?

The flaw is, say I loan out £1000 for 1 year at 7.5% ( a well achieved rate on that site and apparently better than the banks!!!!) if I loan out that amount after month one the borrower will pay me back £83.33 leaving me with only £916.67 earning the 7.5 % interest and that amount will become less and less each month. As the money that comes back into the holding account earns no interest ,more and more money is sitting redundant and because you cannot lend out less than £500 you cant do anything with it. So therefore after one year you will only earn £37.50 interest over the year on the £1000 loaned (or 3.75% in interest) less than my current savings account and that is without factoring in the approx 1% possible bad debt factor!!
I suggest the Zopa either decreases the minimum lend or either allow lenders to earn interest on the non loaned money held in their accounts

this obviously wont affect borrowers on the site at all. overall if this gets sorted it will be an awesome tool

Why not withdraw the money every month ?

Personally I would not touch Zopa with a barge pole

newmoneyuser

Well after 2 week and a half, the current status is

£430 allocated to loans being processed
£90 has been lent out to borrowers

As I noted before, lending seems to be a slow process, Also out of the money lent, £80 has been lent to A class borrowers who wish to borrow over 3 years. The reason for this is that such borrowers benfit from the 2% offer being made by Zopa to lenders as it keeps the rate down.

"A" rated loan at around 20:20 Monday, a blank indicates that the
funds were not available.

............6M...12M...24M...36M..48M...60M

..£1,000 4.7% 4.9% 5.6% 4.2% 6.7% 7.0%
..£2,000 4.8% 5.0% 5.8% 4.4% 6.8% 7.2%
..£4,000 5.0% 5.1% 6.0% 4.6% 7.1% 7.5%
..£6,000 5.2% 5.2% 6.1% 4.7% 7.6%
..£8,000 5.4% 5.4% 6.3% 4.8%
£10,000 5.6% 5.5% 6.5% 5.2%
£12,000 . . . . 5.7% . . . . 5.7%
£14,000 . . . . 5.8%
£15,000 . . . . 6.0%

When compaired to last week's figures, many rates have reduced. The real change can be seen in the amount of funds now available as last week the highest available amount was £8,000. £15,000 is the max amount that someone can borrow.

One last thing, Zopa has now stated that the %2 offer made to people lending in the A band for 36 months has been extended to the end of March.

DreamerBFC

Ah well - I've just joined Zopa - I've just money lent at above high st rates of interest within 2 weeks ( even taking into account any bad debtors ).End result is that I'm happy and the borrowers are happy - seems like a good idea all round if you want my 'umble opinion !
ps and Zopa now pay interest on unlent money !

Ted_Bloke

MSE_Martin wrote:

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

I'm looking forward to seeing this. Basically I think as lender it can only be considered a bit of a flutter, a gamble that the whole thing is OK, and then a gamble you will get a little more than you can get from comparable investments against a chance you'll get a little less.

Firstly a some of people in this thread and others have false perceptions of risk and of how interests on loans works. The latter boils down to not having worked out that you don't get interest on money that has been paid back, just the same that a lot of people in regular savings schemes are surprised when find out they don't get interest on money they haven't lent yet. So sure you ought to know this before you start, but you can't accuse Zopa of not having explained it.

About how it works I agree the Zopa site is, well, it looks like a messy DIY job. You have to know it before you can find what you want. It seems difficult to estimate at what rate you do best to try and lend at until you are lending. I recommend, decide in what packets you are going to lend - you can go down to £10 - then make your maximum packet half that, or else don't ever change anything in your offer after making it. Because if you change anything the software seems to take that as a new offer and you can find you've lent twice your maximum to a single borrower.

The market. It seems to be a borrowers' market just now. I always see there are offers at near giveaway rates. But you don't have to go down to that minimum. Because though there may be a few dozen lenders offering at less than you, they each offer small sums so someone looking for a £5000 loan can get, or the Zopa people on his behalf, e.g. £2,000 from 100 people each offering £20 at the lowest rates but then he has to go to those offering to lend at higher interest even though there is unlent money in the market at lower. Still the pressure always seems down. I think people initially offer money at an optimistic rate, see it not being lent, or slowly, decide there is no point having it hanging around at 0% and reduce their rates. However now that the unlent money gets 3% this pressure should decrease, it is not costing as much as before to keep money unlent and people should hold on for a better return.

The risk
I think people who have quibbled the default arithmetic have got it wrong, that Zopa's calculation is not wrong as arithmetic, your likely return is on average arithmetically what they say based on general data for that type of loan.

The gamble
I distinguish gamble from risk. Risk is the best calculation actuaries and accountants can make of averages based on historical, if recent, data. Gamble is chancing that you might beat the market because of something not in that data, e.g. backing your hunch.

One hunch is that that the Zopa borrowers are a better risk than average. I can think of reasons to think so, I can think of reasons to think the opposite. I can think of reasons to think, and I do think, that the borrowers are better now than they will be in the future, so the risk premium one should demand will increase. But you may think the opposite - I wonder what others think and why?

Second gamble is around this 2% Zopa subsidy. Not worrying for the moment about my capital or the borrowers' repayments, if my calculation of whether it is worth it depends on the subsidy, and it does, I worry how can they keep their promise? They seem to be borrowing my money and lending it for less, so how can they pay me what they promise? If they default just on that then I won't lose my shirt, just the difference between a worthwhile or not deal. I've got no answer on how this can work. ( But I'll try to reason it myself: Maybe they are counting on the increase of business in the next 3 years. In other words future lenders will be subsidising me when I lend now to get them started. Hope so. That would be justified by my gamble. But then Zopa is gambling too. Maybe not with their own money. Maybe with mine, that's my worry. Maybe though, there is a bank in on this which they are not saying for ideological public relations reasons as they have set themselves up against the hated banks. But it would make some sense: Zopa unloads risk, a bank unloads administration of making petty loans? Or, I saw somewhere, some venture capitalists? In that case maybe what squares this calculation is some tax concession? In both cases, it probably means if and when Zopa prospers the financiers have probably negotiated a very good return. Which lenders, borrowers or both will have to pay. So that would dampen the return in the future, but no need to worry about that now, the only worry is will they keep the promise?)

The third and key gamble is surely, is the whole thing is not a bunch of lies, all the reasoning above depends on what they say being the truth with nothing important omitted? So far I've seen money come back. That is one advantage of a scheme where capital is paid back not just interest, the individual and community will get more advanced warning of any problem. The attitude I'd expect of lenders is: this is a new kind of thing, it has no track record. I don't know who's behind it. (Well I know the names. Their background appears respectable, no-one has challenged that. Journalists have said nothing against it. But then before other failures, mnentioned in this forum, did they ever do so beforehand? Can they, even if they suspect or know something? When Martin says 'I wouldn't touch it with a bargepole' you wonder if he knows more than he says? So I'll watch his answer carefully, what he says and how he says it.) You'd expect people to say I'll keep my money under the matress, or at least with the devil of a bank/BS I know. I'd have thought they'd demand a bigger risk premium than they have.

Well as I said I'm having a flutter. But nothing I can't afford to lose. And for now I'll bank the repaid money.

Would welcome people's thoughts on my reasonings and conjectures.

ManAtHome

Good post Ted.

I've not had any dealings with ZOPA, but it's certainly an interesting concept. Personally, I think it may be an attempt to be the next Amazon etc - get some cheap money, run for a few years at a loss then float for heaps of cash... (and divi up with the cheap money men).

I'm surprised their rates for small amounts aren't higher though - thought this would be where their market opportunity was. Anyway, sounds like you're taking the right approach and viewing it as a (currently subsidised) gamble - good luck.

thepearce

Surely this can't be right. I can't work out whether it's a good thing (make some money, or offset interest) or a bad thing (encourage people to take out loans / have credit potentially affected) but judge for yourself....as I've no doubt a debate will follow.

Zopa is a site / company that matches up borrowers and lenders at it's most basic. It's been in the weekly tip as you can (ab)use them to get you equifax credit rating/score (which is why I went there in the first place). there are many threads on this site about the pro's & cons of https://www.Zopa.com - simply do a search.

Anyway - the thing I found out tonight is that Zopa recently started offering cashback (£80) at quidco.com for a lend OR borrow transaction from a member. If you don't know what https://www.quidco.com is you're already missing out - you get cashback on your purchases at a better rate than old faves such as greasypalm....though they do take a yearly fee. Again seach is your friend for more info.

I don't see how they can afford to do that - but then a lot of companies do very silly things like this (bluesq.com). Anyway - I've taken a small loan out and should nett substantially more than I pay in interest [£15] . It's certainly intriguing ....just wonder where the money's coming from.

I wouldn't want to abuse quidco.com or put them in an awkward position as it's been quite lucrative for me, but then the £100 Barclay's sting shows MSE is not against what some people may choose to do in the pursuit of a free lunch (or at least having someone else with deeper pockets buy it for you).

Hope this info is useful to some people.

They are also offering £30 + £30 refer-a-friend bonus at the moment. I don't know if you could possibly combine the two .

I'm sure I don't need to preach to MSErs about affecting your credit rating or any borrowing risks....... but please bear them in mind if you are contemplating taking zopa up.

From quidco :

What is Zopa? Zopa is the first lending and borrowing exchange. What it does is very simple: Zopa puts people who want to lend money in touch with credit-worthy people who want to borrow. At Zopa you’re lending directly to real people, cutting out the middleman – so everyone gets a better deal. Zopa was created by the team that created Egg - and is backed by Benchmark Capital, the company that backed eBay.

For genuine tracked transactions completed wholly online, you can earn:

£80 for lending or borrowing transaction by a member of Zopa

greencatrus

There's also some very low rates on Zopa if your in the A band so if your paying higher intrest elsewhere why not switch.

kingkano

Getting in the A band is hard tho isnt it? 475 rating or above?

Darren21

Can someone tell me what the minimum amount to lend to people is?

thepearce

kingkano wrote:

Getting in the A band is hard tho isnt it? 475 rating or above?

A band is 475 or more yes..... I'm in the B band and my credit is pretty good in terms of card limits etc.

Equifax state :

Your lender may be able to give you guidance on the criteria that it uses for a specific credit product. However, generally scores indicate the following:

0 to 278 is very poor and represents very significant risk to lenders
279 to 366 is poor and represents significant risk to lenders
367 to 419 is fair and represents some risk to lenders
420 to 466 is good and lenders will be more inclined to grant credit
467 and above is excellent and lenders will be more inclined to grant credit