The Anonymous Widower

Closing A Zopa Account

Someone likes the idea of a Zopa account, but is worried about, how he could get access to the money in an emergency. I have been researching this and find that although it may not be the best financially in the long term to close a Zopa account, there are ways that will get most of the money out fairly quickly.

Let’s say you have £10,000 invested in Zopa and it is lent out on a three year basis. If you do nothing then over three years the money will be returned with the appropriate interest, subject to any losses from bad debts. There is only one way to assess these and that is by looking at the past performance of your loans and the proportion of bad debts that Zopa discloses. I have always adjusted the interest rate I charge to be not too greedy on the one hand and not too low on the other to get the money lent out quickly.  I also make sure, I don’t lend over large sums to any borrower.

Analysing my borrowers, shows that only a small proportion have missed a payment and only five out of over 2300 loans have gone bad.  Ask anybody who has run a finance company about that rate and they will say it is very small.

If we look at our notional £10,000 it will earn about seven percent a year, which is £2,100 over the three years. I’m assuming here that you reinvest the money in Zopa. Looking at Zopa performance it would appear that about two percent of loans fail. So if we look at the our £10,000 then expect to pour something like two hundred pounds down the drain.

It’s not quite as simple as that and I’ll be putting together an Excel  spreadsheet that is properly calculated.

But the point is that you will still get 98% of the original money back, plus a bit of interest.

But supposing you want the money quicker. Only a small proportion of my loans are not available for Rapid Return,  which is Zopa’s get out quickly method. This will cash out most of the money in a couple of months.

But I wouldn’t do that!

The notional £10,000 will give you a cash flow of about three hundred pounds or so for the three years, but if reinvested in Zopa it could be longer. This may in fact be what you want to do.

The trouble is if you have cash-in-hand you always want to spend it.

September 1, 2011 - Posted by AnonW | Finance | Banks, Zopa