The Anonymous Widower

Rules for Zopa

I’ve now got back to looking after myself a bit better and I’m now keeping a proper check on my Zopa lending.

I think it’s fair to summarise a few points about my lending, which incidentally started in October 2008.

1. About a quarter of all the approximately 2,300 contracts that I have lent money on have closed, with all the interest and money being repaid.  All of this money has now been relent.
2. Generally, there is about a £100 pounds that has not been lent, as people are still signing contracts and getting properly checked.
3. At present there are 7 contracts that are late with payments and three have defaulted.  One of the latter actually died, so that was unfortunate, but mainly for him.
4. Since my stroke, I lend on a little and often basis.  I restrict all contracts to no more than £10 and only lend to those in credit categories A and A*, which are the highest.  I also adjust the rate I charge so that my money gets lent out quickly. I will probably change this when I’m a hundred percent better and I need to put in more money.  But Zopa seems to be getting the money lent quickly, so why shouldn’t I make it work!
5. I’ve only ever lent over 36 months.

Managing this properly means that I’m getting a return of about 5.5 to 6%, which is not bad in the present circumstances.

So how would I invest a sum in Zopa as a new lender, so that money was at the least risk.

1. Read everything I can about Zopa and probably join their forum to ask questions from actual lenders and borrowers.
2. Start with investing a sum, that you can afford to lose some of.  I started with some of the proceeds of the sale of my late wife’s Porsche Boxster.  Often a sum of £200 to £300 is a good value to start with.
3. Set the maximum level you are going to lend to one borrower at £10.  It’s very easy to adjust, so as you get used to Zopa, you can increase it.
4. Set that you will only lend over 36 months to those with the highest credit ratings of A and A* and adjust your interest rates to something that gives you a sensible return and also a Medium or High lending speed. There’s no point in trying to get a 10% return, when no-one will borrow at that rate!
5. Check what is happening every one or two days, so you can see how things are progressing.
6. I analyse data and have made sure, that I have kept everything about the lending in a fairly simple Excel spreadsheet.  This enables me to calculate returns effectively, but also I can see which strategies work to my advantage in the best way.

Have I made any mistakes?  Yes of course!

1. I used to lend in the Youth market because I thought it was morally a good idea and also because I got a higher rate.  But I got one bad debt from this market and found that money tended to go slowly into it, as there didn’t seem to be the demand.  So I no longer lend new money to this market, although of course I do have existing contracts in it, which are going fairly well. The figures now, two years since I started lending include one bad debt in 216 contracts and a return rate upwards of 7%.  So perhaps it is a market, I shall start to put my feet back in, in the next few months.
2. My maximum lending amount to any one borrower was too high, so that I was more likely to feel bad on a default. I suspect that it’s less risky to lend 10 lots of £10, than one of a £100.but on the other hand as you increase this maximum level,the money does tend to go out faster. As Zopa only charge you a fixed percentage on the money lent, there is no disadvantage to lending lots of small amounts.
3. I also had more than one profile, which meant that as each profile has money to lend, I could also lend money twice in the same loan to one borrower.  It would not be a good idea, as it then breaks your maximum rule.

As I said earlier don’t take my word for it.  Read all you can about Zopa and if you want to swim, have little paddle first!

October 21, 2010 Posted by AnonW | Finance | Zopa | 14 Comments