Moneywise and Zopa
Just read this page.
So in terms of trust Zopa rank with the very best when it comes to providing personal loans.
Who says so?
A survey of 12,000 Britons by Moneywise. I suppose it all boils down to how much you trust Moneywise and their methods of doing surveys.
The detailed results are here.
Here’s a couple of paragraphs from the page.
Although there’s the risk of borrower default, lenders benefit from rates that are higher than those on savings accounts, while borrowers enjoy low rates and no early repayment fees.
And the model’s proved a hit with its customers. One describes it as “shaking up financial services,” while another said “it just works. No nasty bankers”. There’s also praise for the service Zopa providers: “They are friendly and care about their members. Service is fast, reliable and efficient.”
Incidentally, Santander and Halifax were rated the worst.
It’s All About The Markets
There is a lot of doom and gloom in the markets, as this report says.
To me the markets have become one gigantic fruit machine, run not for the benefit of the companies and investors, but for the middle men. Did you ever see a financial advisor on a bicycle?
Remember the Stock Exchange was setup originally so that businesses who needed to expand could raise money to do so. Those who invested got a return on their money, with the higher returns coming from the more risky investments. It’s about time the Stock Exchange got back to basics.
An old friend, Phil, long since dead, and myself put forward the principle of a company called Very Dodgy Investments, which would only invest in blue chip stocks like GEC. We never had the guts to start it, but GEC went into melt-down soon afterwards, despite having been one of the most cash-rich and solid companies a few years before.
Over the last few years, I’ve come to the conclusion, that a company is only as good as the person who pulls the strings, no matter what the figures look like. Just as with GEC at its pomp, you might not have liked some of Lord Weinstock’s methods, you couldn’t fault the returns you got by investing. The same could be said of other companies and the people who led or now lead them.
But look at some of the banks of recent years. Someone, often with lots of charisma and no sense, have proved that what goes up must come down and have undone many decades of prudent management. Generally by greed. Whoever said Greed is Good was wrong! Wanting to be rich and then working out how you do it, by perhaps inventing something and/or lots of hard work is good. Provided you don’t step over the line of what is morally bad.
But generally the one group of people you can trust is the men and women on the street. Not everyone has of course a good credit rating, but those that have one can generally be someone, who is worth supporting. This principle has been used by reputable banks and building societies to make money for years. It is even being exploited by the government in turning the bad loans of Northern Rock round. People would prefer to pay their loans rather than lose their house, even when the consequences might not be that bad in all cases of default.
Some companies, like those who charge high rates for payday loans also take advantage of the good nature of the person on the Dalston Omnibus. There must be half a dozen of these companies on the Kingsland Road near me.
This principle is one of the reasons I support Zopa. With them, the element of trust also works both ways and to and from the company.
Lenders know that their money will be lent out at the rate they ask for, but they know if they want a too high rate, the money may take some time to be lent.
Borrowers know the consequences of not paying and generally do pay, although there is a proportion of bad debt. They also know that the terms and conditions are as fair as they ever are in the financial services industry.
But I would never recommend Zopa directly to anyone. Look at the company and understand how the system works. Only when you are satisfied with what you see, should you make a judgement.
But I will say one thing. Put a note in your diary for ten years from now to look at what Zopa has become!
I’ll also say one last thing about the markets. Who tell you to invest in the Stock Market? Journalists, who work for so-called reputable newspapers! And possibly others with similar vested interests, but no money of their own.
You might ask why I invested in Zopa. I’m a Control Engineer by University Education, a Computer Programmer by work experience and someone who likes those behind an idea to have a proven record amongst many things. Zopa ticked all of my boxes and felt it was worth investing the money I got from selling my late wife’s Porsche Boxster. It wasn’t even the world’s third best car anyway!
It’s been a case of so far, so good! But Zopa for me has outperformed the Stock Market.
An Odd Problem With Zopa
Because a lot of people repay their Zopa loans on the first of the month, when the first is at a weekend, these payments get delayed by the banking system by a couple days and I worry that something has gone seriously wrong, as money hasn’t arrived. I just checked and tomorrow is a very big payday – We need to have 28-day months to sort this problem out.
Or I could stop being paranoid.
Sunday Parking Protests
There seems to be a lot of protests about charging for parking in Westminster on Sundays.
Why not? After all quite a few UK cities charge.
Anyway, one of the reasons people buy a car seems to be so that they can moan about fuel prices, parking charges, Congestion Charges, insurance and tax. I don’t have to worry about any of these things now!
According to the AA, if I had a £20,000 diesel car doing 10,000 miles a year that would cost me £6081 or thereabouts. In addition, if I invested the money on Zopa at six percent, that would give me another £1200. That gives me £140 a week to spend on black cabs and trains to take me outside of London.
Zopa Abandons Listings
Basically, Zopa had two different forms of lending; markets and listings.
Markets work by lenders getting together to fund loans to borrowers. All is done automatically by the computers and risk assessors in the middle.
Listings are best defined like this.
In a nutshell, they work just like an online auction, except that the ‘price’ comes down instead of going up.
Once a listing becomes 100% funded, you’ll see that the overall interest rate will begin to fall as lenders compete with each other to be included in the loan.
I never used them. And as they weren’t as popular as markets and were quite expensive to administer, Zopa have now dropped them.
How To Fund A Dog Wash!
The Times today has an article about peer-to-peer lending by Alexandra Frean.
In it she describes how a guy called John Good from Davison, Michigan got the money to expand his car wash into the clean dog business by using a loan from Lending Club.
It’s all good stuff and just shows how the banks are missing the peer-to-peer lending market, which I think will be one of successes of the next ten years or so and probably much longer.
In the United States the systems are different to the UK, but it doesn’t totally stop them having successes. I myself use the peer-to-peer lending site, Zopa, as my deposit account as even if I run it conservatively, it gives me upwards of six percent before tax. There is risk and I have had 3 contracts out of 2359 go bad, which have cost me £322.60 or 0.6 percent of my total investment. Alexandra’s article quotes returns of 9 percent net of defaults and charges in the United States.
I could probably make a higher return, if I upped my rates, but then I’d get a higher rate of default, as I’d probably attract more risky borrowers.
I also think I’m benefiting because I’ve been lending money for some years now and have a strong feeling about how you arrange the rates to get the best value.
Zopa’s Credit Checking
I’ve just received my financial statement for the tax year ended on the 5th April 2011 from Zopa.
The interesting line says that the capital written off this year due to bad debts was nothing. Incidentally, I’ve only had three contracts go bad in 2,500, that have been written and they have cost me just over £300 out of over £50,000 invested.
So on those figures, I think I can say that Zopa checks on who they accept for loans are very good.
Perhaps if some banks had been as careful we wouldn’t have had a banking crisis!
Bank Holiday Effects On Zopa
My repayments from Zopa over the last week or so have been rather erratic, with a lot of payments failing from otherwise good borrowers, quite a few loans being cancelled and other non-normal occurrences. I also didn’t have any repayments for several days, probably because the banking system was virtually shut down. I don’t think there is anything to worry about as the system seems to be levelling out to normal behaviour. Today for instance, I had the highest daily level of repayments ever.
Changing Repayment Dates on Loans
I’ve mentioned this before with respect to Zopa.
I just wondered how many of the loans that changed payment dates had a rather chequered history, so I went through all of my loans, where the payment date had changed.
Of the 16 loans that had changed the date, only one was late and the amount owing on that one was just a few pence. Interestingly some were a bit chequered until the date changed, but immaculate afterwards.
So it looks like this feature is good for both borrowers and lenders.
Responsible Lending
If I walk up the Kingsland Road in Dalston, the road is crawling with money shops, pay day loan companies.pawnbrokers and all of the other dodgy lenders that proliferate these days.
So when someone who works in finance, said there was a thing called The Lending Code, I thought I’d take a look.
It is the sort of worthy document produced by regulators and the like that is manna from heaven to all those dodgy lenders down the Kingsland Road and others who shark loans with large amounts of advertising, sponsorships of Premiership football teams and sometimes with door-to-door salesmen with big boots.
I always remember a story told by a respectable finance guy, who said that when the government restricted the length of time you could take out a loan for and if it was for something like a car, then you could only lend a percentage, it was a licence for finance companies to literally print money. If everybody sticks to the Lending Code, then the costs to borrowers will go up, banks will make higher profits and many will be effectively removed from the list of borrowers. A lot will remove themselves because they won’t be bothered to read the paperwork.
When I was in Greece, I thought I might stay a bit longer and in that case, I would have needed more cash, as Greece is very much a cash society. So I used the Internet to login to my Nationwide account and increase the overdraft. In the end, I came home and haven’t used the limit. But would the Lending Code with all its provisions on overdrafts make such a simple transaction more difficult?
What is really needed is a plain English Lending Code. When I was at ICI, we used to write and distribute flyers about the jobs we did with our computer. They were successful in getting new business and this was because they were read. And why were they read? Because they were a single sheet of A4 paper.
So The Lending Code as implimented by a bank say, should be a series of web or A4 pages related to each area of lending. If it can’t fit on one sheet, then The Lending Code is wrong.
Only in that way could we have a code that could be understood by the man or woman on the Dalston Omnibus! These are the people we need to protect from the lenders. Not those like me that sit in the middle of the lending market and only use it, when they have a well-thought out need.
I like Zopa and I’ve met a few of their borrowers, who seem very happy with the way Zopa does business. In a way, you can almost class Zopa as a group of people coming together to lend money to others. Isn’t that supposed to be what building societies and credit unions were and are about?
In a way though, Zopa, although it is unregulated by the FSA, acts like a mainstream lender, in that it does proper identity and credit checks and gets tough with those that default on their payments. I think, that it might be unique in that it allows borrowers to chsnge their payment day or repay the loan early without penalties, when perhaps their cicumstances change. Both these features, should be in The Lending Code. I can’t even find the word early in The Lending Code.
So yet again the bureaucrats are creating work for themselves in trying to protect the unprotectable.
The Anonymous Widower 