Getting Out of Zopa
I’ve got about £50,000 of my money invested in Zopa. Most of it came from the sale of C’s Porsche Boxster, an upfront pension payment and lots of small payments when I’ve found that I’ve some money to spare. I’m now moving house and might need some money to buy bits of furniture, as not everything I’ve got here will fit.
I could use Zopa‘s standard method of getting out called Rapid Return, which I discussed here, but why should I give others the benefit of my good payers?
So out of curiosity I added up how much money was returned to me in the thirty days of November! It was £2,600. My statistics don’t tell me at present how many loans were repaid early in that time, so I can’t be sure if I’ll get this figure back each month.
But it does illustrate that if you want to invest a sum for say three years or longer, then Zopa might be a place to consider! Provided of course that you understand fully what you are doing!
By any measure, though I’m getting more than I would if I’d invested it with any of the reputable wunch of bankers! Here‘s what Lloyds TSB offer.
The other problem with a bank, is that doing business with them isn’t any fun at all. With Zopa you can play the rates to lend your money for either more interest or better clients.
My First Second-Hand Loan on Zopa
I said a few weeks ago, that Zopa had introduced a get out method called Rapid Return.
Today I acquired my first second-hand loan. So it was only £30, but I did lend it at a rate half-a-percent higher than my minimum rate.
So it would appear that for other borrowers it might be a good thing, as you get a chance to pick up safe loans at a good rate.
A Wonga Moment
I first became aware of Wonga, the on-line lender, a couple of years ago at an on-line awards ceremony. It didn’t win, and I can remember telling a lot of people at the time, that I didn’t think it was very ethical or even legal, as it charged a very high rate of interest for small sums. I think I even asked the guy doing the presentation a question on this basis, but I can’t be sure.
I’d hoped that the businesss had gone to the dogs, as I didn’t like it, but I now know it hasn’t, as it adorns the shirts of Blackpool FC. And then on the train to Norwich this morning, I saw the headline, What ‘pay day’ lender Wonga’s television advertisements fail to dwell on: 2,689% APR , in the Mail on Sunday, being read by the guy next door.
In other words, they charge hundreds of times more than my preferred on-line lender, Zopa.
I have no experience of using them, but the Mail has a fairly worried tone about the company. I would suggest that before you use Wonga, you read their article and discuss it with someone who knows finance better than I do!
I also write this from experience of being a partner in a finance company and the sometime holder of a Consumer Credit Licence. I also once had a business card that amongst the things I did, said. “Loans Sharked”
Wonga though might have a postive side. When there is a general awareness of how much they are being charged by some of the highly-advertised finance companies, people may actually realise that there are other and much better ways of getting their finances in order.
A Zopa Surprise
I have three Zopa loans that have gone bad and have been written off. They have cost me £340.48 against total interest paid of pver £5,000. So it’s not too bad really.
Imagine my surprise when I found that after twelve months of no payments, one of these dead loans credited me with three pounds. So there is some life there!
Is Zopa Getting Too Popular With Lenders?
I keep fairly detailed statistics of my lending on Zopa, so I am able to discern trends fairly quickly. I usually set my rate so that money will be lent out at a Medium speed, which usually means that I lend at a rate between of 7 and 8 percent, with a very low risk of default. Out of the well over 2,000 contracts I’ve lent, only three have gone to default, which is a default rate of just 0.13% by contracts and 0.07% in terms of money.
So I think I’ve got a safe philosophy. But who knows?
However, there is a trend that has started to be noticeable this month.
Zopa allows you to find how much money is wanted by clients and how much is available at all times. Obviously to get a good lending speed to clients, the amount of money on offer should be higher than that demanded. At the start of the month the ratio of Money Offered over Demand was about 2, but it has since risen to over 3.
The reason is obvious as in that time the money on offer has risen from about £15M to £20M.
As every action has an equal and opposite reaction, the extra money has forced the rates that borrowed have to pay down by about half a percent.
So I am now not getting as good a return as I was in the past. But I’m not bothered as the money is much safer than it was in an Icelandic Bank and my returns overall are upwards of five percent, which is above the High Street.
I think though the corollary of this, is that if you need a few thousand to buy a car and you have a good credit rating, then Zopa will be a better place to borrow.
Don’t believe me, but read this article in the Daily Mail about a lady, who wanted £5,000 for a car!
More Players in Peer-to-Peer Lending
This article should be read before you delve into something like Zopa, as it gives a good summary of how the peer-to-peer market works and who the players are.
I think I’ll stick with Zopa for the time being.
Zopa Brings in a Get Out Method
Zopa is in the process of introducing a get out or sell your loans on method, if you want to cash in and use your money for another purpose.
They call it Rapid Return and effectively loans are passed on to another lender.
I’m not sure if I shall use it, but it makes sense for a lot of lenders.
One restriction is that your can’t pass on a loan with a failed payment.
This does not affect me much, as nearly all of myof loans with a failed payment are now up to date, but I don’t think I will cash in any of the others, as most seem to have been going for over eighteen months at slightly higher rates than I can get now. So those are probably best left to generate interest until they are repaid in a few months.
I seem to have eleven loans, where my contribution is £300 and they were lent out at 8% over two years ago. Most are about 60% repaid, so they have done well. None has a failed payment. So I could recover about £1320, by selling the loans on. If I chose to keep these eleven loans, ‘ll get additional interest of about £100.
So it strikes me that Rapid Return may have uses for some people, it is not worth cashing in good loans, unless you have a desperate need for the money.
On the other hand, buying parts of these loans may well be worthwhile, as old loans tend to be at higher interest rates than those today.
I shall eep you up-to-date on progress here.
Zopa and the Davids
According to their site, the most common name for both borrowers and lenders is David. Is that because it is the most common name amongst the general public.
When I worked as a consultant to Lloyds Bank, they always joked that most bank managers were called John, as they were so boring!
But then the only good one I ever knew was called David. Where is he biw, when the world needs him?
Zopa and America
In some ways, Zopa illustrates the United States’ problems.
Zopa is an innovative financial company and you’ve have thought it would have gone down well, given the country’s history with credit unions.
But no! The legislators made it impossible for the company to operate in the same way as in the UK. Read Zopa’s view on this. It may have been a bad way to launch in the United States, but another company called Prosper doing peer-to-peer lending also had troubles with the regulators.
You can read what you like into all that, but I can’t help feeling that the US still gives the banks too much power to squash possible threats.
Zopa Approaches 500,000 Members
Zopa has announced that they are approaching half a million members.
That to me is an astonishing figure, considering they’ve only been going for a few years.
Obviously, some are borrowers and some are lenders.
The Anonymous Widower 