The Anonymous Widower

Rules for Zopa – May 2012

I did write a set of rules for Zopa investors or lenders some time ago, but my thoughts have changed since then.

Joining Up

The first set of rules are concerned with joining up.

1. Don’t join up to Zopa without reading all you can find out about the system and how it works. There is a forum on the site, where you can ask questions to borrowers and lenders. Search the Internet for any references to Zopa.  That is easy as the word, Zopa, doesn’t occur much outside of reference to the company.

2. When you are certain you want to join, always get invited by a member.  That way, if you invest more than £2,000, they will get a bonus of upwards of £50, which traditionally,they will share with you on say a meal!

Getting Started

The next set of rules are concerned with getting started with lending money.

1. Choose a sum of money that you would like to experiment with. Obviously choose a sum that if you really muck it up, you can afford to lose. I would suggest a sum below £500 initially so you can get a feel for the system. I did make a mistake in that I started too high and got a couple of bad contracts because in my impatience to get the money lent out, I set the parameters wrong.

2. Choose the markets you want to lend into. I started with A* and A, and later I added the B market to them.  I ignored the C and Y markets as I thought they were too risky. Do all your lending in one offer, as this will mean, that if say there is a shortage of punters in the A market, but plenty in A*, the money will get lent out.

3. When you have chosen the markets adjust the interest rates you want to charge in these markets. I have found that the best thing to do is to set the rate, one notch( or 0.1%) below the level where you are told it is “Too High”. Note that the lower you set the rate the faster you will lend out the money, but this lower rate also brings in more dodgy borrowers.

4. Set the maximum amount you want to lend to individual borrowers to something like £50. Setting it higher will mean you lend out the money quicker, but it will increase your risk. Looking at it simply, if you lend out £1,000 in 10 lots of £100, if one goes bad, you will lose £100, but if you lend it in 20 lots of £50 and one goes bad, you only lose £50. It’s not quite as simple as that, but it does show you the pitfalls of lending in too big chunks.

As money gets lent out, you will see how changing the rate and maximum amount you lend will change the speed with which money is lent out.

Daily Maintenance

I look at my account and do the following every day.

1. Withdraw any money I need from accumulated interest and early repayments, if required.

2.  The balance of this money is then reinvested.

3. The interest rates I charge are set to my desired level of one notch below the “Too High” level.

4. I also put all of my important values in an Excel spreadsheet.

Obviously not everybody has time to look at their accounts every day, but make sure you do it regularly. There is nothing worse to login and find that you have a lot of money sitting there doing nothing.  You might as well have it in ten pound notes under the bed!

A Long Term Strategy

Most borrowers set their repayment day to either the first of the month or somewhere close to the end, which probably reflects when people get paid. I have lent out 3130 loans of which 38.4 % were on the first of the month and 8.2 % on the next most numerous day, which is the 28th.

I have now developed a long term strategy, where on or about the first of the month, I withdraw enough to pay my monthly bills to my current account.  If say, at the mid-point of the month, I have more in my current account than I need, the excess is returned to Zopa.

April 30, 2012 - Posted by | Finance | ,

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