Zopa. Neither a borrower nor a lender be!

thebyp

Paul_Herring wrote: »

People don't lend to 'the 15k arena,' what likely happened is there weren't enough people willing to lend their tenner or whatever to make up 15k to that section (A*, A, B or C/36 or 60 month) of the market.

well that sucks, wish i hadn't bothered really

[Deleted User]

Sugar puffs, looked into Zopa, signed up, found this thread, just requested account closed....

Note to self: MSE first, MSE first...

naseby_2

There is a desperate need for Martin to check out Zopa again.
His advice was in a time before the credit crunch and the current low interest era.
His thoughts are based on the idea that the top saving account with instant access pays 5.35% (that dates it a bit!).

To my amateur eyes Zopa seems a reasonable risk given that they credit check potential borrowers (emphasis on the word risk).
I've opened an account, put in £120.
the intention is to loan it out in 2x£60 bits @around 10% to someone wanting a loan for 12 months.

MarkyMarkD

The risk which nobody ever mentions is the risk that Zopa simply goes bust. How easy are you going to find it to collect your loans in such circumstances?

And Zopa "deposits" aren't covered by the FSCS because they aren't deposits with Zopa at all ... they are loans to individuals via Zopa.

alisoninbristol

Could this information be updated again please?

I'm quite interested in Zopa - but would like an up to date MSE view before I get invovled.

Alison

519mcnel

Agree that the original advice has been overtaken by events.

I heard a programme about Zopa on R4 recently and have been interested in becoming a lender (with 1-2k) and am willing to accept some risk.

Can we have an update please before I dive in!

Cheers,
CH

jamesd

519mcnel, Zopa continues to be a poor deal for lenders, easily beaten by corporate bond funds that pay out tax free in a S&S ISA, and without FSCS protection. If you have capital that you're willing to risk at Zopa or somewhere else, better to get the higher returns you can get elsewhere.

Once you're already using all of the other opportunities, you might consider up to 5% of your money in each type of unregulated investment vehicle, one of which is Zopa.

You should pay particular note of the bad debt chart, which shows that for the period from 2 to 3 years ago bad debts are around twice the allowances given. For 1 to 2 years ago they are already greater than the allowances and are likely to follow the same doubling pattern as more borrowers default over time. The last 12 months is too short a time for there to have been many defaults on those new loans. So take great care and be prepared for the possibility that you'll see twice or more the bad debt level Zopa is using in its rate calculations.

Bad debt can't be deducted from returns before tax, even though that's what the Zopa lending screen calculations do, so if you're trying to compare Zopa to other things you need to do calculations like this:

A36 average lending rate last week 7.1% (not specified whether this includes the Zopa fee or not, I'll use not for this calculation).
Deduct tax at 40% = 4.26% after tax
Deduct bad debt allowance of 0.8% = 3.46%
Gross back up = 5.77%

So that 7.1% rate on the lending screen is equivalent to 5.77% before tax, before any allowance for the worse than specified past performance.

The C36 market is particularly ugly:

C36 average lending rate last week 10.8%
Deduct tax at 40% = 6.48%
Deduct bad debt allowance of 5.2% = 1.28%
Gross back up = 2.13%

And if that one was to experience the double bad debt rates you'd be well into negative return.

Looking at that list of funds sorted by yield (interest and/or dividends) You find that the highest paying are offering:

10.25%, 9.06%, 9.05%, 8.90%, 8.70%, 8.62% and so on, all tax free if inside an ISA.

Potentially interesting ones are Newton Global High Yield Bond SIS (9.05%), Artemis High Income R (8.62%), Invesco Perpetual Monthly Income Plus (7.70%) and Newton Higher Income SIS (7.36%). Like Zopa, these aren't guaranteed and there's a chance of capital loss and there certainly will be more displayed capital value variation than you see at Zopa.

olivier81

how would i go about investing in one of these funds?

jamesd

olivier81, I use Hargreaves Lansdown and they tend to be most popular here for funds. If you have any questions about them and how to do things, best to give them a call. They are invariably helpful when it comes to what can be done and how. Their stocks and shares ISA or fund and share account can hold those funds.

Usual minimum purchase is £1,000 worth for the first buy, £250 for later buys of a fund you already hold but it's easy to avoid that:

1. You can use the regular monthly payment option to pay in as little as £50 per fund per month and can change this at any time, even after just one month.
2. You can buy one fund then sell some of that one to buy others, with a minimum of £50 or less on the others that you buy.

Once you have done the splitting or regular payment once, then the £250 minimum applies in the future or you can continue the same monthly buy or sell split approach.

ErikP

A lot of ignorant commenting and out of date stuff on this thread.

ZOPA has been around long enough to have a track record and the financial circumstances of 2010 are so different to 2006. Borrowers should check it out and so should SOME potential lenders.

It is something to do for the longish term to provide some guard against your savings dwindling in a normal deposit account. There is an element of balancing risk against reward but it is not so hard.

The main problem with being a lender is that you can't just withdraw your money. It will dribble back in once you stop lending over a 3-5 year period. Money you need in a hurry should be on short term deposit even though it loses value through inflation.

At the moment the effective rate of return (if you pitch your offers well) is about 6-8% gross assuming some bad debt experience. That is better than RPI and it is what I want to see my long term deposits managing.

I am delighted to read complaints on this thread from people being rejected as borrowers. It warms the heart of this particular lender.

As for "customer service" I don't want there to be any. This is a way of using modern technology to undercut the banks. If you can't cope with the automation go and see Mrs Goggins at the Post Office (while it is still there). You need to be an intelligent lender. Tweak your offered rates in each of the "markets" every fortnight/month.

My Spouse is below the tax threshold but has to fill in a tax return as a result of various bits of income. Zopa is very easy for her to add to her portfolio. Not everyone has her brains of course but borrowing is easy - lending on Zopa is best left to those with an accountancy brain.