Discussion
I've been registered with this lot for ages (http://uk.zopa.com/ZopaWeb/), but have only started lending in the last month or 2. I'm getting an average 14% return with risk spread as widely as possible.
At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
Personally I would never borrow to do this, especially at a time of unknown bad debt to come.
It will take you quite a while to lend a significant amount at 14%, due to processing times and the number of people who dont pass checks, temporarily locking up your cash (unless you set your maximum loan size to be something relatively high/risky to the amount you are lending - ie over 1%). Also the 14% C band is slow moving, more of Zopa's business is in the better credit rating bands to which you will get to no business at 14%, the Y band is a new thing and has not found its equilibrium yet so a temp effect.
It has taken me 4 years to build up a big portfolio and one of the most frustrating things is early payment. It takes a long time to get decent business and then they pay off early with no penalty! Same thing will happen again in the future...
One thing is for sure, things are absolutely amazing right now - never been better. Three months ago you would have got quite a lot less business at 14%.... it seems the credit crunch is getting worse and worse.
It will take you quite a while to lend a significant amount at 14%, due to processing times and the number of people who dont pass checks, temporarily locking up your cash (unless you set your maximum loan size to be something relatively high/risky to the amount you are lending - ie over 1%). Also the 14% C band is slow moving, more of Zopa's business is in the better credit rating bands to which you will get to no business at 14%, the Y band is a new thing and has not found its equilibrium yet so a temp effect.
It has taken me 4 years to build up a big portfolio and one of the most frustrating things is early payment. It takes a long time to get decent business and then they pay off early with no penalty! Same thing will happen again in the future...
One thing is for sure, things are absolutely amazing right now - never been better. Three months ago you would have got quite a lot less business at 14%.... it seems the credit crunch is getting worse and worse.
jsc15 said:
I've been registered with this lot for ages (http://uk.zopa.com/ZopaWeb/), but have only started lending in the last month or 2. I'm getting an average 14% return with risk spread as widely as possible.
At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
I suspect that at 14% you are lending to people who are very unlikely to be able to repay the debt or maybe even service it. That really is toxic lending.At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
Plus, when I investigated this company some time ago, I soon learnt that you could only lend out very small amounts meaning that it really wasn't worth the time.
Horse_Apple said:
I suspect that at 14% you are lending to people who are very unlikely to be able to repay the debt or maybe even service it. That really is toxic lending.
Plus, when I investigated this company some time ago, I soon learnt that you could only lend out very small amounts meaning that it really wasn't worth the time.
I have to disagree with both those points (sorry!!). The worst credit rating band 'C' on zopa that attracts these rates services its debts 99% of the time (for me over 4 years) and this has not changed in the near-term. I have always expected and planned for 90%, but this has never materialised. I have enough loans to represent to market fairly.Plus, when I investigated this company some time ago, I soon learnt that you could only lend out very small amounts meaning that it really wasn't worth the time.
Believe me, you can lend out large amounts, it just takes time. If you set your max loan at £20 it will take years..... however if you have decent amount of cash to put in, set it to £250 and you will put £10,000 into credit check processing a week at the moment.
Ade355 said:
Horse_Apple said:
I suspect that at 14% you are lending to people who are very unlikely to be able to repay the debt or maybe even service it. That really is toxic lending.
Plus, when I investigated this company some time ago, I soon learnt that you could only lend out very small amounts meaning that it really wasn't worth the time.
I have to disagree with both those points (sorry!!). The worst credit rating band 'C' on zopa that attracts these rates services its debts 99% of the time (for me over 4 years) and this has not changed in the near-term. I have always expected and planned for 90%, but this has never materialised. I have enough loans to represent to market fairly.Plus, when I investigated this company some time ago, I soon learnt that you could only lend out very small amounts meaning that it really wasn't worth the time.
Believe me, you can lend out large amounts, it just takes time. If you set your max loan at £20 it will take years..... however if you have decent amount of cash to put in, set it to £250 and you will put £10,000 into credit check processing a week at the moment.
So you can easily invest £10K a week, so build up a book of over £500K in a year? Originally, the max was just a few thousand.
On the default side, if those figures are still correct then it would give Zopa the best credit book in the world by an enormous margin right now. 1% default rate on loans priced out at 14% is simply unbelievable.
Horse_Apple said:
Fair enough, I last looked at this when it launched.
So you can easily invest £10K a week, so build up a book of over £500K in a year? Originally, the max was just a few thousand.
On the default side, if those figures are still correct then it would give Zopa the best credit book in the world by an enormous margin right now. 1% default rate on loans priced out at 14% is simply unbelievable.
Maybe a wave of defaults is on the horizon, so definately new entrants should be cautious if they dont have the 'good times' behind them as a cushion.So you can easily invest £10K a week, so build up a book of over £500K in a year? Originally, the max was just a few thousand.
On the default side, if those figures are still correct then it would give Zopa the best credit book in the world by an enormous margin right now. 1% default rate on loans priced out at 14% is simply unbelievable.
About 50% of applicants fail the credit check or drop out, so in the £10K scenario around about £5000 would be invested for 1-5 years (Some people pay off very early) and to process these loans to completion might take 2-3 weeks. To get this volume you will move the market slightly, but not significantly and probably achieve 9-12% on most loans (not 14% - for these you have to play a waiting game!). You need a consumer credit license for a loan book this size.
Zopa dont own the loan book, us investor do. Maybe there is something about person to person lending that is personal enough to weigh on people's consciences. Its easier to default to a faceless bank perhaps.
jsc15 said:
I've been registered with this lot for ages (http://uk.zopa.com/ZopaWeb/), but have only started lending in the last month or 2. I'm getting an average 14% return with risk spread as widely as possible.
At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
This reminds me of some credit derivative instruments that were risk free (AAA) but were paying 200bps over risk free rate. What could possibly go wrong......At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
jsc15 said:
I've been registered with this lot for ages (http://uk.zopa.com/ZopaWeb/), but have only started lending in the last month or 2. I'm getting an average 14% return with risk spread as widely as possible.
At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
Tax?At face value it appears I can borrow (as a safe risk) at a rate of 8%-ish, and then lend that out at 14%-ish to perceived medium-to-high risks. After allowing for the potential bad debt (call it 1%) this still seems like a no brainer
What am I missing here?
Ade355 said:
Horse_Apple said:
Fair enough, I last looked at this when it launched.
So you can easily invest £10K a week, so build up a book of over £500K in a year? Originally, the max was just a few thousand.
On the default side, if those figures are still correct then it would give Zopa the best credit book in the world by an enormous margin right now. 1% default rate on loans priced out at 14% is simply unbelievable.
Maybe a wave of defaults is on the horizon, so definately new entrants should be cautious if they dont have the 'good times' behind them as a cushion.So you can easily invest £10K a week, so build up a book of over £500K in a year? Originally, the max was just a few thousand.
On the default side, if those figures are still correct then it would give Zopa the best credit book in the world by an enormous margin right now. 1% default rate on loans priced out at 14% is simply unbelievable.
About 50% of applicants fail the credit check or drop out, so in the £10K scenario around about £5000 would be invested for 1-5 years (Some people pay off very early) and to process these loans to completion might take 2-3 weeks. To get this volume you will move the market slightly, but not significantly and probably achieve 9-12% on most loans (not 14% - for these you have to play a waiting game!). You need a consumer credit license for a loan book this size.
Zopa dont own the loan book, us investor do. Maybe there is something about person to person lending that is personal enough to weigh on people's consciences. Its easier to default to a faceless bank perhaps.
Its <1% on A* loans which arent 14% returning
emicen said:
Ade355 said:
Horse_Apple said:
Fair enough, I last looked at this when it launched.
So you can easily invest £10K a week, so build up a book of over £500K in a year? Originally, the max was just a few thousand.
On the default side, if those figures are still correct then it would give Zopa the best credit book in the world by an enormous margin right now. 1% default rate on loans priced out at 14% is simply unbelievable.
Maybe a wave of defaults is on the horizon, so definately new entrants should be cautious if they dont have the 'good times' behind them as a cushion.So you can easily invest £10K a week, so build up a book of over £500K in a year? Originally, the max was just a few thousand.
On the default side, if those figures are still correct then it would give Zopa the best credit book in the world by an enormous margin right now. 1% default rate on loans priced out at 14% is simply unbelievable.
About 50% of applicants fail the credit check or drop out, so in the £10K scenario around about £5000 would be invested for 1-5 years (Some people pay off very early) and to process these loans to completion might take 2-3 weeks. To get this volume you will move the market slightly, but not significantly and probably achieve 9-12% on most loans (not 14% - for these you have to play a waiting game!). You need a consumer credit license for a loan book this size.
Zopa dont own the loan book, us investor do. Maybe there is something about person to person lending that is personal enough to weigh on people's consciences. Its easier to default to a faceless bank perhaps.
Its <1% on A* loans which arent 14% returning
From their FAQs:
17. What are the estimated bad debt rates?
Based on data provided by Equifax about our expected borrowers, and their many years of professional experience, our risk team has made their best estimates of the levels of bad debt expected in each market. That information is used to calculate the return after bad debt that is displayed to you on the lending screen.
Despite our risk teams efforts, it is important to consider that the actual level of bad debt you experience may vary from their best estimate.
MARKET BEST ESTIMATE
A* Market 36 mths 0.5%
A* Market 60 mths 0.4%
A Market 36 mths 0.9%
A Market 60 mths 0.8%
B Market 36 mths 2.0%
B Market 60 mths 1.6%
C Market 36 mths 3.8%
C Market 60 mths 3.1%
Young Market 36 mths 3.7%
Young Market 60 mths 2.9%
The actual bad debt figures shown on the site based on actual defaults in a period stretching 03/06 - 04/08 are lower than those for the most part.
17. What are the estimated bad debt rates?
Based on data provided by Equifax about our expected borrowers, and their many years of professional experience, our risk team has made their best estimates of the levels of bad debt expected in each market. That information is used to calculate the return after bad debt that is displayed to you on the lending screen.
Despite our risk teams efforts, it is important to consider that the actual level of bad debt you experience may vary from their best estimate.
MARKET BEST ESTIMATE
A* Market 36 mths 0.5%
A* Market 60 mths 0.4%
A Market 36 mths 0.9%
A Market 60 mths 0.8%
B Market 36 mths 2.0%
B Market 60 mths 1.6%
C Market 36 mths 3.8%
C Market 60 mths 3.1%
Young Market 36 mths 3.7%
Young Market 60 mths 2.9%
The actual bad debt figures shown on the site based on actual defaults in a period stretching 03/06 - 04/08 are lower than those for the most part.
'lower for the most part' is a massive understatement. Where are you getting your figures from?
0.04% defaults since zopa started (debt sold on).
0.12% with CRS collection (most of which is historically settled).
The '14%' C-60 market currently stands at 0.000000000% in default or collection
£24,000,000 lend, and there are currently 15 late payers
Lets see how those figures evolve upwards. Investors have been pricing in a 100 fold increase in defaults over the last year.... but the tidal wave has not hit..... yet.
0.04% defaults since zopa started (debt sold on).
0.12% with CRS collection (most of which is historically settled).
The '14%' C-60 market currently stands at 0.000000000% in default or collection
£24,000,000 lend, and there are currently 15 late payers
Lets see how those figures evolve upwards. Investors have been pricing in a 100 fold increase in defaults over the last year.... but the tidal wave has not hit..... yet.
Ade355 said:
'lower for the most part' is a massive understatement. Where are you getting your figures from?
0.04% defaults since zopa started (debt sold on).
0.12% with CRS collection (most of which is historically settled).
The '14%' C-60 market currently stands at 0.000000000% in default or collection
£24,000,000 lend, and there are currently 15 late payers
Lets see how those figures evolve upwards. Investors have been pricing in a 100 fold increase in defaults over the last year.... but the tidal wave has not hit..... yet.
From their webpage. Its done in flash though so cant copy the bar chart in as an image here. There appears to only be one sector experiencing defaults according to their figures.0.04% defaults since zopa started (debt sold on).
0.12% with CRS collection (most of which is historically settled).
The '14%' C-60 market currently stands at 0.000000000% in default or collection
£24,000,000 lend, and there are currently 15 late payers
Lets see how those figures evolve upwards. Investors have been pricing in a 100 fold increase in defaults over the last year.... but the tidal wave has not hit..... yet.
I'm not deriding theri business, far from it, I'm reading their T&Cs now to see about throwing some money in.
I take it the figures you mention above are available once you sign up in some form of lenders area?
Relevant article
http://www.bbc.co.uk/blogs/thereporters/robertpest...
The Bank of England's data shows that this new risk aversion has been even more pronounced in the provision of personal loans.
Over the past year, the average interest rate on a £5,000 loan has risen by more than three percentage points to 12.37 per cent and that on a £10,000 loan has increased by two percentage points to 9.42 per cent. Overdraft and credit card rates have also inched up.
This shows that banks are factoring in the impact of an economic downturn on the ability of their customers to keep up the payments
http://www.bbc.co.uk/blogs/thereporters/robertpest...
The Bank of England's data shows that this new risk aversion has been even more pronounced in the provision of personal loans.
Over the past year, the average interest rate on a £5,000 loan has risen by more than three percentage points to 12.37 per cent and that on a £10,000 loan has increased by two percentage points to 9.42 per cent. Overdraft and credit card rates have also inched up.
This shows that banks are factoring in the impact of an economic downturn on the ability of their customers to keep up the payments
The full data I have quoted is here:
http://talk.zopa.com//index.php?s=81258cc7167423a7...
I think you might be able to register without being a zopa member, not too sure.
http://talk.zopa.com//index.php?s=81258cc7167423a7...
I think you might be able to register without being a zopa member, not too sure.
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