Is anyone leveraged on Zopa?

Wobblydeb

.... and do you think this is what has driven down the lending rates?

I had dismissed Zopa previously as didn't want to tie up cash for a long time. Then had the bright idea of leveraging by being both borrower and lender.

This of course cuts the margin requirement right down, which from what I've read has happened on Zopa, which suggests plenty of people beat me to it....

Linton

Sounds a bit like what Northern Rock got up to or have I misunderstood?

Wobblydeb

LOL I don't know exactly what brought Northern Rock to it's knees. I know a man who does though, so shall attempt to find out

qpop

I'm guessing your margins would be small enough that the risk would outweigh the return.

Wobblydeb

But the return would be based (potentially) on very limited capital input so would be quite significant. Which is why I think it is already being done, and hence has squeezed the rates on Zopa.

financial_illiterate

Wobblydeb wrote: »

But the return would be based (potentially) on very limited capital input so would be quite significant. Which is why I think it is already being done, and hence has squeezed the rates on Zopa.

The risk is the people you lend to default, leaving you liable for the money you owe, which based on what you've just said could be 'quite significant'.

IronWolf

You're basically going to be operating like a bank, except you wont have the diversity of holdings they have, or the detailed credit checks they have available.

recipe for disaster imo

Wobblydeb

The risk is not substantially different to lending on Zopa though.

Leveraging simply allows a higher value to be re-invested and hence spread across more borrowers.

The biggest risk I can see is not getting all of the amount borrowed loaned out - I'd still be paying interest on the borrowed amount. I know you are about to argue that the biggest risk is default, but lets say I loaned £100 to 500 different people. The greater the number of borrowers the more the default odds should tend towards the norm. I'd be at much greater risk if i loaned £100 to 10 different people.

I do find it bizarre - people are quite comfortable with the idea of leveraging when investing in property (BTL mortgages) and also in business (through business loans) and yet doing it for this type of investment suddenly strikes fear into the heart of folks

Wobblydeb

financial_illiterate wrote: »

The risk is the people you lend to default, leaving you liable for the money you owe, which based on what you've just said could be 'quite significant'.

'quite significant' referred to the % returns, rather than the amount....

qpop

Borrow £5000 over 36 months at 5.9% fixed

• Representative APR
• 7.8%
• Total amount of credit†
• £5,130.00
• Total repayable amount†
• £5,600.91
• Per month
• £155.58

Based on that illustration, to get a net positive return (with a caveat) you'd have to lend to the worst credit rated borrowers - C. The caveat is the 9.1% average C borrower return is quoted before bad debt.


Once bad debt is figured in I'm guessing that you lose any profit you could make.


Think about it, the borrower foots the cost of the lenders fees/platform, so your leveraging rates wouldn't work.

Wobblydeb

Is the 9.1% fixed or APR?

Does anyone know what the default rates are for C36?