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.
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.
- 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.
- Generally, there is about a £100 pounds that has not been lent, as people are still signing contracts and getting properly checked.
- 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.
- 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!
- 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.
- Read everything I can about Zopa and probably join their forum to ask questions from actual lenders and borrowers.
- 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.
- 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.
- 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!
- Check what is happening every one or two days, so you can see how things are progressing.
- 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!
- 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.
- 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.
- 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!
Bank Margins
The margins banks are charging on lending are being criticised. And rightly so!
It’s actually all our fault. We borrow too much to on things like credit cards and always go the conservative route about how we borrow and invest. We also don’t shop around with our banking and change when we should!
So don’t complain about the banks, look for sensible alternatives.
As I’ve said before, I lend money through Zopa. I also know of people, who’ve used the company for a loan. I’ve not heard any complaints yet. So it does appear there are alternatives out there! But be prudent! It’s just a pity that Prudence wasn’t, or we’d all be in a better state.
An Advantage for the Zopa Borrower
I recently had an e-mail from Zopa, asking if I’d mind if one of my borrowers could change their repayment day, as they had changed jobs and now got their salary on a different day of the month.
How civilised? And of course I had no reason at all to object.
I wonder how Big Bank plc would have responded to the same request! They would probably have charged you for the privilege!
It all illustrates how banking will change in the next few years, driven by innovators like Zopa.
Zopa Rates Around the Election
Let’s assume that this election without a full outcome has put a lot of instability into the money markets. According to all the commentators it should. But then those traders in the City are in business to make money in the short-term and not place money for the greater good in the long-term.
So is there a real measure of what real people think about finance?
I lend money on Zopa, which is a peer-to-peer lending site. I’m not interested in short-term gains, but sensible and safe long-term growth. I get about 5.5% before tax taking everything into account. It’s also fun and a bit like gambling without the risk.
So how has Zopa performed over the last few weeks? And specifically what have their rates done?
Zopa Rates 2010 – 11th May 2010
If you look at the rates, the pattern appears to be very similar to the last few months. There has been a slight upward trend of rates, with a squiggle around the turn of the month. The latter is because most Zopa loans pay around the beginning of the month and this affects the rate as most investors reinvest their returned payments.
So does this mean that most Zopa users have just been carrying on as normal and letting the lunatics in Westminster and the City get on with their high-profile nonsense?
I shall report on this in about seven days time, as I think it will still be nice and stable despite the politics.
Medical Progress
I got my driving licence back on Thursday and yesterday I went to see my stroke doctor at Addenbrooke’s.
So how do I feel both physically and mentally?
Take yesterday.
I needed to get the Lotus Elan back from having the MOT from Newmarket and as everyone was busy and my secretary was not in, no-one could give me a lift. So it was get out my trusty Brompton and cycle. It should have been easy as although the trip was about sixteen kilometres, most of it is downhill. Or at least it is if I go the shortest, but not the car-friendliest route. But the Brompton slipped into fifth and couldn’t get anything lower than fourth. And then there was the cold strong headwind.
But even so I made it easily in an hour. I suspect I would be a lot quicker on my proper bicycle with the wind the other way.
On Wednesday the stroke doctor had told me that I had a leaky valve. Now sometimes I think I can tell when it starts to leak. Or am I imagining things. I just push myself too hard and then I get a bit breathless, but if I get a rhythm going, I can pedal for over an hour. Especially in Holland, where they have abolished hills by law.
It was nice to get back in the Lotus, which is now all pristine and clean. I must take a few photos before it gets dirty!
Mentally perhaps I worry, but then who wouldn’t after what I’ve been through.
But as to brain function, it all seems to be working. Word functions such as spelling are as good (or bad) as they ever was but I can only type with two fingers. But then I never used more. I do various memory functions when I collect my Zopa statistics, and these are just the same.
So far so good.
Except for one curious thing. I do the Sudoku in The Times every day and have always found that the Super Fiendish were beyond my powers, unless I resulted to a process of elimination. That in my book is almost cheating.
But since the stroke, I can do these without problems in just a few minutes. I would never accuse such an august newspaper as The Times, of dumbing down, but they have just introduced a new section called Mind Games.
I should write to them.
My GP asked me how I was getting on mentally. After all, to lose one of your close family is perhaps normal or bad luck, but to lose two is catastrophic and a downright disaster. And then having a stroke doesn’t make you feel better. Does it? I don’t know, but I sometimes wonder that I now I think it can’t get any worse, so I just l0ook forward to the future. She asked me to fill in a form about how I was feeling. I scored very low. But then that was good.
So what did the stroke doctor say?
He explained that the leaky valve wasn’t probably trivial and that he would refer me to the cardiology team. But then I now feel that I’ve had it for years. I don’t think that my stamina was any better in 1980, than it is now. In fact sometimes I think it is better. But I’ve always had this problem of being able to walk miles and not being able to run more than a couple of hundred metres.
He also said that the heart monitor had said I had an irregular heart-beat.
Because of these problems, he suggested that I go on Warfarin or rat poison. This will thin the blood and make it less likely that I have a repeat occurrence of a stroke.
On the positive side, he felt that the research from Amsterdam on B6, coeliacs and strokes was interesting.
So I feel a lot better this morning, as we have a whole set of reasons, all of which it should be possible to overcome.
As I like to say – The Struggle Continues!
The Anonymous Widower 