Zopa update, Tuesday, 19 April 2011
It is now 14 months since I opened my account with Zopa. The first month I only made two loans of £10 each and so it took a month before I really began to earn interest. I now have a clearer idea of the return on my £500.
I now have just over £94 in interest and that includes £50 for an introduction. The interest is £44 and there have been no bad debts. I made four loans (of £10) to A* borrowers in March at 7% interest and one to an A rated borrower at 7.12% and so the interest rate is reasonable. I have to allow for deductions and possible bad debts; even though I’ve had no bad debts or missed payments. I think people reporting bad debts have taken more of a risk and lent to other markets. I do lend to other markets but at a much higher rate, in practice I only get agreement on the A*, A and B markets. This month, I have made one loans so far at 7%. I think even if I do get bad debts the return will be 6% which is better than inflation and a damn sight better than the banks. I will put more money into Zopa this year; but as part of a diverse investment strategy. Some people did badly at the height of the recession; again they may have been greedy.
To get the £50 introduction fee I need to either introduce a borrower or a lender who will lend over £2,000. I will certainly go over £2,000 this year. The banks have taken enough of my money. The return on your savings with a bank is less than inflation; that is a negative return in real terms. I know people who buy their homes at a rate that is less than inflation or only slightly above it and complain about the mortgage payments. If you are getting a mortgage interest free in real terms then you have nothing to complain about; especially if you have a credit card at a ridiculous interest rate to go with it. Savers are now tired of subsidising mortgages.
If you are outside of the UK, there are other peer to peer lending schemes and you can find them using Google. This is social lending without the greed and obscene bonuses of the bankers. If you are in the UK, why not check out Zopa for yourself.
Monday, 07 February 2011 – © Mike Maynard 2011.
ZOPA – Peer to Peer lending
ZOPA stands for Zone Of Possible Agreement and is a scheme for peer to peer lending. I joined in February last year as a lender and lend out money together with other people but it is diversified by lending it in amounts of ten pounds only.
People who want a loan from Zopa pay a £130 fee and then the interest rate depends upon their credit rating the lowest being to people rated A*, then A, B and C and the Y market which is younger people. My rates at the moment are A* – 6.5%, A – 7%, B – 9.5%, C – 12.5% and Y – 14% and even 14% is lower than many credit cards. I only lend to the 36 month market; but people can have loans over 60 months. The lenders set the interest rates and mine are lot for A* and A. I made 2 loans of £10 in February 2010 and then 46 loans of £10 in March 2010. I don’t make interest while the loans are being arranged and so that has cut my interest in the first year a little. The rates of the loans in February were 10% and 9.59 on average for the loans in March. That is the rate charged not the real rate of return that has to take into account the delay in arranging loans and possible bad debts. I have had no bad debts and only a late payment twice and so I am quite happy with it. I shall invest more this year; but there is no protection if Zopa were to go into liquidation as you have with a bank.
If you borrow from Zopa; you can choose what day you pay your payment back. Lenders can now sell their loan book and get their money back using a scheme called Rapid Return and so you can get your cash back. It seems like a good deal for lenders and borrowers and an alternative to banks. I would suggest that it is considered an investment with a risk rather than just savings. I think borrowers should realise that debt collection services would be used in the case of default too. I put in £500 as research for an article; I wish I had put in a couple of thousand now! My return so far is £35 in interest and £50 for an introduction using my introduction link. That is a return of £85 on an investment of £500 I less than 12 months; I am satisfied with that. If you are in the UK and are interested please use my link; another £50 introduction fee would be handy!
This is the latest Zopa television advert and an advertising campaign may increase interest rates that have dropped. My return now will be about 5% net if interest rates don’t go up.