Zopa - Default loans

[drainbrain]

Is this (to me quite interesting thread) being turned into another pointless unpleasant quarrel?

[sidicks]

drainbrain said:

Is this (to me quite interesting thread) being turned into another pointless unpleasant quarrel?

No, we are discussing the risks, hidden or otherwise, in this type of investment.

[Countdown]

sidicks said:

Countdown said:

Isn’t it? Please quantify the size of the risk and then compare it to my risk appetite.

The risk isn’t small. That doesn’t mean that it isn’t small compared to your risk appetite.

If you are able to state that it isn’t small then surely you must be able to say how big it is?

sidicks said:

Countdown said:

If rates increase significantly then what happens exactly? Ratesetter aren’t borrowing on the Money Markets so it’s not a Northern Rock scenario. I have lent at 4% fixed. The people who have borrowed money from RS have done so at a fixed rate. If general interest rates increase it doesn’t affect the rate that borrowers pay or lenders get.

Their commitments to RS May be fixed but that doesn’t mean they won’t be squeezed elsewhere.

True. And that applies to every borrower everywhere, and it’s a risk faced by all lenders. So I don’t know why RS should worry about this any more than any other lender. I know the assertion was made earlier that RS borrowers are more likely to be sub-prime than borrowers of more mainstream lenders and therefore moe subject to interest rate risk. I’m not sure if that necessarily IS the case but my lending is on a 1 month rolling basis. If the market did hit a bad patch I would be able to withdraw my money pretty quickly.

sidicks said:

Countdown said:

If you’re suggesting that defaults will increase because the economy slows then yes, I agree with you. But that will affect ALL lenders, be they Bank of England or Killer McSavage from the local Pub.

And it will most badly affect those that haven’t priced the risk correctly.

I agree. Much like people who had shares in Bradford & Bingley, Northern Rock, Carillion….

sidicks said:

Countdown said:

And having said all that (again) it isn’t only about “risk”. There are other factors at play such as how quickly I want to access the money, how the balances fluctuate on a weekly/monthly basis. Is it more risky than the bank? Yes. Could it go belly up tomorrow? Yes. Am I happy that the extra 3.95% compensates me for that risk? Yes.

How much detail do you receive on the loans that you are making (before you commit money)?

Edited by sidicks on Friday 20th October 10:23

Zilch. I get an email saying it’s been lent out with a contract note number, amount, and maturity date.

[Countdown]

sidicks said:

drainbrain said:

Is this (to me quite interesting thread) being turned into another pointless unpleasant quarrel?

No, we are discussing the risks, hidden or otherwise, in this type of investment.

Whilst (hopefully) not "unpleasant" it does seem a bit pointless.

It's like me saying people should buy an Avensis over a TVR because the risks of a TVR breaking down are slightly greater.......

[sidicks]

Countdown said:

Zilch. I get an email saying it’s been lent out with a contract note number, amount, and maturity date.

Exactly my point.

But if it works for you then that’s fine.

[Countdown]

sidicks said:

Countdown said:

Zilch. I get an email saying it’s been lent out with a contract note number, amount, and maturity date.

Exactly my point.

But if it works for you then that’s fine.

Would I get the Board Minutes for all the firms in my diversified FTSE portfolio....? If not how can I be absolutely sure my understanding of the risks is accurate...?

[sidicks]

Countdown said:

Would I get the Board Minutes for all the firms in my diversified FTSE portfolio....? If not how can I be absolutely sure my understanding of the risks is accurate...?

You can get financial accounts for companies that you invest in, as well as do wider due diligence.

[drainbrain]

Countdown said:

Whilst (hopefully) not "unpleasant" it does seem a bit pointless.

It's like me saying people should buy an Avensis over a TVR because the risks of a TVR breaking down are slightly greater.......

Yeah that much is obvious, but was just hoping it wasn't going to go down the usual Sid road assuming you weren't going to "agree" and let him "win", and then you get drawn into ever increasing abuse and acrimony....

The way you use RS seems like a good plan, by the way. Can't think of a better way to invest in p2p out of all the ways mentioned.

[sidicks]

drainbrain said:

Yeah that much is obvious, but was just hoping it wasn't going to go down the usual Sid road assuming you weren't going to "agree" and let him "win", and then you get drawn into ever increasing abuse and acrimony....

The way you use RS seems like a good plan, by the way. Can't think of a better way to invest in p2p out of all the ways mentioned.

Contrary to your repeated claims, there’s no winning or losing, just a discussion on risk reward which is different for different people. HTH

[Beanbob]

I've been a Zopa lender for a similar length of time to the OP and have only had two loans go to default - strangely both this year. I've not held significant funds in Zopa (mid 4 figures) and it's always been a bit of a game rather than a serious investment option.

I've always been assured - given the relative low value of the funds I have invested - in the safeguard fund, although I notice this has been removed now. My rate of return over the past 12 months has been 4.3% , which whilst good compared to a savings account, doesn't compare to the returns I've obtained on the funds within my SIPP/S&S and Lifetime ISAs and that's without taking into account the tax breaks I could gain by putting the money in my SIPP. Clearly the funds within my SIPP have a potentially higher risk of being negative although equally they could be multiples of the return I see from Zopa.

[sidicks]

sidicks said:

You can get financial accounts for companies that you invest in, as well as do wider due diligence.

edited to add

Of course for companies, the wider market does their own due diligence and institutional investors do have direct access to much more detailed company information and access to management so that can undertake their own risk analysis, thus helping to ensure that prices / yields remain appropriate.

The same does not apply to small scale lending to private individuals.

[TheAngryDog]

This all very interesting. I am tempted to throw a few grand in this direction if it can earn me 4% over 12 months, That is more than all but 1 of my savings accounts.

[Rick101]

I started with Assetz a few months back.

Decided to get out of a high risk loan (15.5%), 3rd consecutive month there has been a late payment.

Had noted on here the suggestion was that you would be unable to get your money out of a high risk proposition. Requested the sale this morning, just logged in to check status and see it has all been auctioned and money returned. All very easy.

Current 'manual' investments remains at 11%+
Average interest is around 6% but that will jump once I have received my cashback offer and can move my lump to higher interest loans.

[Countdown]

So......anybody think the Coronavirus is going to cause issues for P2P lenders?

[S100HP]

I still owe zopa circa 5k. Not sure I'm going to be able to keep paying at this rate due to incoming redundancy due to this mess. I've overpaid quite a bit. Reckon I can get a payment holiday?

[dmahon]

I had a small investment in P2P which has been a nightmare to get out for nearly 6 months now. Was more hassle than it was worth. Suspect this will crater Zopa and Funding Circle.

[DonkeyApple]

The entire concept only works because risk is deliberately mispriced. It’s hard to image many P2P or minibonds seeing the other side of this. Most actually died in 2018 but this event is likely to lead most to give up the charade.

[LooneyTunes]

DonkeyApple said:

The entire concept only works because risk is deliberately mispriced. It’s hard to image many P2P or minibonds seeing the other side of this. Most actually died in 2018 but this event is likely to lead most to give up the charade.

Not only mispriced, but often mispresented too in my view in ways designed to retail investors the impression that the borrowers are more creditworthy than they are.

[DonkeyApple]

LooneyTunes said:

DonkeyApple said:

The entire concept only works because risk is deliberately mispriced. It’s hard to image many P2P or minibonds seeing the other side of this. Most actually died in 2018 but this event is likely to lead most to give up the charade.

Not only mispriced, but often mispresented too in my view in ways designed to retail investors the impression that the borrowers are more creditworthy than they are.

In reality we are both being very generous in our assessments.

The whole concept was rigged from the outset. The idea was to sit in the middle with no skin in the game and bend the numbers on both sides to get as much flow as possible. There was never any intention to carry out proper due diligence precisely because the business model revolves 100% around borrowers who couldn’t pass proper due diligence. And declining to enforce defaults ensured being able to continuously market a very high business as low risk.

From the outset the concept was to broker toxic debt to stupid investors.

Capital 100% at risk yet allowed to compare themselves against real lenders. Borrowers not charged the correct rate so as to suck in as much junk as possible. Lenders lending to entities that no sane human would touch with a barge pole at the rates being offered.

People never stopped to think that risking 100% of their capital for zero capital upside, zero control, zero liquidity, zero FSCS protection in exchange for an utterly derisory ‘possible’ return was more moronic than sticking their cash up their Harris and dancing around the local shops singing about fairies.

[Jamescrs]

Used Zopa a couple of times over the years as a customer, I found them through comparison websites as they are usually the cheapest rates in my experience at around 3%. Planning on paying off the loan I have in the summer which will be 12 months early.