Zopa - Default loans
Discussion
200Plus Club said:
I mention banks because we as tax payers had to bail them out to a massive extent if you remember and we still "own" a massive amount of one.
Also why are the borrowers all " junk" as you put it? The default rates aren't ridiculous and ratesetter and zopa have been on the go for some time and loaned huge amounts of money so far.
The one thing I will agree with is the rates could be better given my capital is at risk, but I don't believe it's unduly at risk given the credit checks done on lenders and the interest rates they charge them are dependent on risk.
Ratesetter have imho been quite upfront from day one with transparency, default rates and returns. You can get higher rates elsewhere from p2p on bridging loans, buy to let etc.
I like the fact it's virtually instant, fees are tiny and you can jump in or out as and when you want. That's obviously impacting on return rates too . It is what it is for me.
The bail out of the banks is somewhat part of the exact point that is being made. Your money is/was safe. Your money is 100% at risk with P2P. Plus, as you point out there would be no 'bail out'. Also why are the borrowers all " junk" as you put it? The default rates aren't ridiculous and ratesetter and zopa have been on the go for some time and loaned huge amounts of money so far.
The one thing I will agree with is the rates could be better given my capital is at risk, but I don't believe it's unduly at risk given the credit checks done on lenders and the interest rates they charge them are dependent on risk.
Ratesetter have imho been quite upfront from day one with transparency, default rates and returns. You can get higher rates elsewhere from p2p on bridging loans, buy to let etc.
I like the fact it's virtually instant, fees are tiny and you can jump in or out as and when you want. That's obviously impacting on return rates too . It is what it is for me.
Why class buy side users as junk? Because if you can't just walk into a conventional bank and borrow at market rates then that is what side of the prime/junk divide you fall. So as a lender to this lower tier of the market why are you accepting not just such low rates of return but even considering lending without being party to the massive profits from loan defaulters? Have you looked at the terms for a borrower on P2P?
And you mention fees? Why would someone lending money be paying fees? It just further highlights the entire piss take of this product and how it takes advantage of people who simply don't understand or more likely don't want to understand how lending works but are desperate to earn yield without doing any work.
If it's money someone can afford to lose then why on earth put capital at full risk for below market rates.
And if lending to the junk end of the market why would you ever lend at such low rates (look to the space between junk credit card rates and Wonga to see a better idea as to where rates should be) and not have a huge slice of equity or a lien on security that more than covers the outstanding?
Your lending to the end of the market that high street lenders don't want (first clue). People who are using credit cards that charge at the 30% end and to which P2P lenders are attracting by offering them vastly mispriced (cheap to them) debt but you don't have the upside of sharing in the highly lucrative default market (why do card lenders not stop their defaulting clients? Because a debtor going into default is very profitable). And why would you pay fees to lend someone your money? Your paying a fee to take on huge credit risk for well below market rates of return with all of your capital at risk?
You pay fees if you sell out early, not to lend money. P2p obviously not for you, at present I have no issues as the default rate is zero for me on ratesetter. In zopa I have lost £1.54 in 2 yrs out of the interest I have earned.
Each to their own obviously. Now if you have suggestions for something paying more than 4% net with guaranteed capital i would love to hear more, as I'm looking around at present.
Each to their own obviously. Now if you have suggestions for something paying more than 4% net with guaranteed capital i would love to hear more, as I'm looking around at present.
200Plus Club said:
You pay fees if you sell out early, not to lend money. P2p obviously not for you, at present I have no issues as the default rate is zero for me on ratesetter. In zopa I have lost £1.54 in 2 yrs out of the interest I have earned.
Each to their own obviously. Now if you have suggestions for something paying more than 4% net with guaranteed capital i would love to hear more, as I'm looking around at present.
That's kind of the point. We aren't in a passive income environment. Ergo, why take 100% capital risk for hugely below market yield in the first instance?Each to their own obviously. Now if you have suggestions for something paying more than 4% net with guaranteed capital i would love to hear more, as I'm looking around at present.
This is really what many people don't get. When you risk weight investments then getting 0.01% on capital that is 100% secured is a far superior and smarter return than getting 4% on capital that is 100% at risk.
The whole wheeze only works because punters look at just the headline rate and as you are doing, then compare it to an actual savings rate. It's apples and oranges. The two are completely different products and the trick is to get punters to think they are the same and therefore the one with the higher yield must be the better one.
In markets where income yields are suppressed then returns are derived from capital risk or labour investment. Hence why we have seen huge asset inflation and increases in working hours.
But by focussing on the headline yield and ignoring what the product actually is and trying to compare it to conventional savings you have fallen into the marketing trap that was laid out very neatly for you and others.
So, the key is not to be looking at the 4% headline and thinking it's better than 0.01% in a savings account as the two aren't comparable despite what the marketing chaps are wanting you to think. The key is to recognise that regardless of all the fancy apps, logos, trendy schpeil you are taking capital risk but not getting any capital return. Not only that but you have no security nor any rights to the revenue from the default process.
It's an incredibly s
tty deal and if you removed the app and all the trendy guff and imagery and boiled it down to what it is which is unknown punters who have proved that they are bad with money asking you to lend them your hard earned money at prime lender rates with no security only a raving lunatic would put their hand in their wallet and pass real money over to such a punter. i do get where you are coming from, and you are right, but i can only comment that with the couple of £k i have invested in each, for the last 2 or 3 years, i havent had any losses, only gains, and i did /do accept 100% of my capital is at risk in these. i'm pulling out of Zopa and leaving ratesetter (with its slight benefit of a provision fund) as my only p2p product then, with probably less than £5k total.
the ease of use is one attractive aspect of them all, quite rightly as are low /negligable fees. maybe in 10 yrs the entire market for them will be gone or widely different, who knows.
the ease of use is one attractive aspect of them all, quite rightly as are low /negligable fees. maybe in 10 yrs the entire market for them will be gone or widely different, who knows.
DonkeyApple said:
That's kind of the point. We aren't in a passive income environment. Ergo, why take 100% capital risk for hugely below market yield in the first instance?
This is really what many people don't get. When you risk weight investments then getting 0.01% on capital that is 100% secured is a far superior and smarter return than getting 4% on capital that is 100% at risk.
This is really what many people don't get. When you risk weight investments then getting 0.01% on capital that is 100% secured is a far superior and smarter return than getting 4% on capital that is 100% at risk.
I am surprised DA, that these rates of return attract lenders, when there is capital risk and no safety net.
I was aware of the existence of P to P but knew little about it, and had not read participants experiences before seeing this topic.
As I mentioned earlier (below), the low yield was the first thing to catch my attention. I previously thought that it would have been far higher than just roughly equalling RPI.
- P2P is not something for me, but reading your comments, what has surprised me is the quote of 3.4% gross return. I thought borrowers paid enormous interest rates on this type of product. Is credit card borrowing at well over 10%, maybe over 20%.
If the people are borrowing for very short periods, then of course that would make it expensive to operate, and presumably rates quoted annually then have less meaning. I am simply thinking aloud. How it works in practice, I don't know.
A related tale about my naivety, to amuse you. Years ago I looked at a new shop that opened in a dingy part of town, selling TV's, domestic electrical white goods etc. My thoughts were they won't last long, because that stuff is now bought out of town, or on line.
Later I learnt how the shop (Brighthouse) operates. A very different business model from what I assumed. Apparently, so I am told, a TV for say £500, ends up costing probably £1,500.
I've lent money to plenty of business borrowers and have very rarely had to write it off. And I know a couple of private lenders to businesses (and have borrowed from both of them) who've done very well from it.
Of course there's 'risk' in lending. There's only one 'real' risk though. And that's the risk you won't get repaid as agreed.
I have grave doubts about the efficacy or even the reality of so-called 'risk assessments'. They seem more like potentially endless mere opinions on why the Only Real Risk might occur.
Unfortunately if you're not prepared to take a risk (like me with the lottery - only one risk i.e. that I won't win) you won't be gaining anything and will be left with your money in a 'risk-free' bank account with a fair certainty that it's value will be eroded to nothing by inflation. Leaving you 'lending' your money to a bank to make money from with zero or near zero return to yourself plus a 'guarantee' that a certain amount of it won't just completely vanish.
No-one's ever made anything without being prepared to take the risk that the 'anything' might not work out. When it gets interesting - and where the concept of risk assessment falls apart - is when one man's hi-risk is lo-risk to another. Much can be made by exploiting that position.
Of course there's 'risk' in lending. There's only one 'real' risk though. And that's the risk you won't get repaid as agreed.
I have grave doubts about the efficacy or even the reality of so-called 'risk assessments'. They seem more like potentially endless mere opinions on why the Only Real Risk might occur.
Unfortunately if you're not prepared to take a risk (like me with the lottery - only one risk i.e. that I won't win) you won't be gaining anything and will be left with your money in a 'risk-free' bank account with a fair certainty that it's value will be eroded to nothing by inflation. Leaving you 'lending' your money to a bank to make money from with zero or near zero return to yourself plus a 'guarantee' that a certain amount of it won't just completely vanish.
No-one's ever made anything without being prepared to take the risk that the 'anything' might not work out. When it gets interesting - and where the concept of risk assessment falls apart - is when one man's hi-risk is lo-risk to another. Much can be made by exploiting that position.
drainbrain said:
I've lent money to plenty of business borrowers and have very rarely had to write it off. And I know a couple of private lenders to businesses (and have borrowed from both of them) who've done very well from it.
Of course there's 'risk' in lending. There's only one 'real' risk though. And that's the risk you won't get repaid as agreed.
I have grave doubts about the efficacy or even the reality of so-called 'risk assessments'. They seem more like potentially endless mere opinions on why the Only Real Risk might occur.
Unfortunately if you're not prepared to take a risk (like me with the lottery - only one risk i.e. that I won't win) you won't be gaining anything and will be left with your money in a 'risk-free' bank account with a fair certainty that it's value will be eroded to nothing by inflation. Leaving you 'lending' your money to a bank to make money from with zero or near zero return to yourself plus a 'guarantee' that a certain amount of it won't just completely vanish.
No-one's ever made anything without being prepared to take the risk that the 'anything' might not work out. When it gets interesting - and where the concept of risk assessment falls apart - is when one man's hi-risk is lo-risk to another. Much can be made by exploiting that position.
No-one is saying you shouldn’t take risk - for most people NOT taking investment risk makes no sense, particular in the current economic environment.Of course there's 'risk' in lending. There's only one 'real' risk though. And that's the risk you won't get repaid as agreed.
I have grave doubts about the efficacy or even the reality of so-called 'risk assessments'. They seem more like potentially endless mere opinions on why the Only Real Risk might occur.
Unfortunately if you're not prepared to take a risk (like me with the lottery - only one risk i.e. that I won't win) you won't be gaining anything and will be left with your money in a 'risk-free' bank account with a fair certainty that it's value will be eroded to nothing by inflation. Leaving you 'lending' your money to a bank to make money from with zero or near zero return to yourself plus a 'guarantee' that a certain amount of it won't just completely vanish.
No-one's ever made anything without being prepared to take the risk that the 'anything' might not work out. When it gets interesting - and where the concept of risk assessment falls apart - is when one man's hi-risk is lo-risk to another. Much can be made by exploiting that position.
What is being said is that, when you are taking investment risk, you need to ensure you are appropriately rewarded for that risk. Otherwise, in the long-term, you will lose money.
The analogy is betting on red / black at the Casino but accepting odds of less than evens. You might make money in the short term, but in the long term you will certainly lose money!
200Plus Club said:
i do get where you are coming from, and you are right, but i can only comment that with the couple of £k i have invested in each, for the last 2 or 3 years, i havent had any losses, only gains, and i did /do accept 100% of my capital is at risk in these. i'm pulling out of Zopa and leaving ratesetter (with its slight benefit of a provision fund) as my only p2p product then, with probably less than £5k total.
the ease of use is one attractive aspect of them all, quite rightly as are low /negligable fees. maybe in 10 yrs the entire market for them will be gone or widely different, who knows.
The change will most likely appear at the point that rates rise as that will trigger the increase in defaults above what the model can handle. It's highly sensitive exactly because they are hugely mispricing to drag in borrowers and still having to pay above institutional rates to borrow your money. So they are lending to non prime and earning almost nothing and with no fat to handle a spike in defaults. the ease of use is one attractive aspect of them all, quite rightly as are low /negligable fees. maybe in 10 yrs the entire market for them will be gone or widely different, who knows.
But it's interesting to consider a £5,000 investment. It's being put 100% at risk for 12 months, day and night in order to try and earn c£250 gross?
That's risking £5000 to make £250 over the course of a year. Or to put it another way, each day you're risking £5,000 to make 70p.
It's at this point that you can start seeing why in low yielding environments people choose to instead either take on capital risk or use labour. Just one hour of labour a week at minimum wage generates a greater return without risking any capital etc.
These firms don't have credible balance sheets, their clients aren't protected by the FSCS and they use clever marketing to make potential clients compare the potential returns against secure savings rates from fully licensed and protected banks instead of making true comparisons. It's bad business and a lot of unwitting punters are going to get hit when the worm turns.
I also notice that the P2B lenders have suddenly realised that the chaps running the property scams are far smarter than the Shoreditch MBA, on trend guy running the P2B Risk Department and are pulling the plug on that market. We're probably due for either a consolidation or a contraction on that side of the new way to get other people to lend to dodgy borrowers while sitting in the middle hoovering fees while thinking you're not running any risk.
drainbrain said:
I've lent money to plenty of business borrowers and have very rarely had to write it off. And I know a couple of private lenders to businesses (and have borrowed from both of them) who've done very well from it.
Of course there's 'risk' in lending. There's only one 'real' risk though. And that's the risk you won't get repaid as agreed.
I have grave doubts about the efficacy or even the reality of so-called 'risk assessments'. They seem more like potentially endless mere opinions on why the Only Real Risk might occur.
Unfortunately if you're not prepared to take a risk (like me with the lottery - only one risk i.e. that I won't win) you won't be gaining anything and will be left with your money in a 'risk-free' bank account with a fair certainty that it's value will be eroded to nothing by inflation. Leaving you 'lending' your money to a bank to make money from with zero or near zero return to yourself plus a 'guarantee' that a certain amount of it won't just completely vanish.
No-one's ever made anything without being prepared to take the risk that the 'anything' might not work out. When it gets interesting - and where the concept of risk assessment falls apart - is when one man's hi-risk is lo-risk to another. Much can be made by exploiting that position.
Obviously. But I bet you priced your risk pretty efficiently and in terms of DD had a pretty good idea of who you were lending to. Of course there's 'risk' in lending. There's only one 'real' risk though. And that's the risk you won't get repaid as agreed.
I have grave doubts about the efficacy or even the reality of so-called 'risk assessments'. They seem more like potentially endless mere opinions on why the Only Real Risk might occur.
Unfortunately if you're not prepared to take a risk (like me with the lottery - only one risk i.e. that I won't win) you won't be gaining anything and will be left with your money in a 'risk-free' bank account with a fair certainty that it's value will be eroded to nothing by inflation. Leaving you 'lending' your money to a bank to make money from with zero or near zero return to yourself plus a 'guarantee' that a certain amount of it won't just completely vanish.
No-one's ever made anything without being prepared to take the risk that the 'anything' might not work out. When it gets interesting - and where the concept of risk assessment falls apart - is when one man's hi-risk is lo-risk to another. Much can be made by exploiting that position.
If some chap comes up to you in the street with a copy of his passport and a recent utility bill and asks you to borrow £5,000 what interest rate are you going to offer this random stranger when all you know about him is the following:
- His basic ID so in theory where he lives and that he is who he says he is.
- And that he can't borrow any more from a legitimate high street lender or from other conventional sources. (Including credit cards at over 20%)
What would be a sensible rate to offer to give him access to your personal £5,000 savings that the bank are looking after for you securely and even paying you a couple of % on?
5%, 10%, 15%, 20%, 25%, 50%, 100%, 500%, 1000%?
Let's say you can also take advantage of an insurance policy from an underwriter that has little in the way of material assets has set aside a tiny pool of funds to cover defaults but has underwritten many thousands times more risk. So in essence, is utterly worthless as a means to safeguard your savings but of immense value to a marketing department.
What rate would you lend to Dodgy Dave at?
DonkeyApple said:
Obviously. But I bet you priced your risk pretty efficiently and in terms of DD had a pretty good idea of who you were lending to.
If some chap comes up to you in the street with a copy of his passport and a recent utility bill and asks you to borrow £5,000 what interest rate are you going to offer this random stranger when all you know about him is the following:
- His basic ID so in theory where he lives and that he is who he says he is.
- And that he can't borrow any more from a legitimate high street lender or from other conventional sources. (Including credit cards at over 20%)
What would be a sensible rate to offer to give him access to your personal £5,000 savings that the bank are looking after for you securely and even paying you a couple of % on?
5%, 10%, 15%, 20%, 25%, 50%, 100%, 500%, 1000%?
Let's say you can also take advantage of an insurance policy from an underwriter that has little in the way of material assets has set aside a tiny pool of funds to cover defaults but has underwritten many thousands times more risk. So in essence, is utterly worthless as a means to safeguard your savings but of immense value to a marketing department.
What rate would you lend to Dodgy Dave at?
I thought 'groak' knew lots of dodgy characters, so would be able to get his money back one way or another?!If some chap comes up to you in the street with a copy of his passport and a recent utility bill and asks you to borrow £5,000 what interest rate are you going to offer this random stranger when all you know about him is the following:
- His basic ID so in theory where he lives and that he is who he says he is.
- And that he can't borrow any more from a legitimate high street lender or from other conventional sources. (Including credit cards at over 20%)
What would be a sensible rate to offer to give him access to your personal £5,000 savings that the bank are looking after for you securely and even paying you a couple of % on?
5%, 10%, 15%, 20%, 25%, 50%, 100%, 500%, 1000%?
Let's say you can also take advantage of an insurance policy from an underwriter that has little in the way of material assets has set aside a tiny pool of funds to cover defaults but has underwritten many thousands times more risk. So in essence, is utterly worthless as a means to safeguard your savings but of immense value to a marketing department.
What rate would you lend to Dodgy Dave at?
Well, I'd happily lend money to Groak for him to lend out to 'those the banks have left behind' than I would some Shoreditch trendy with an a slick website and an FSA number who thinks they've invented the wheel. His solvency is probably far better and I'm confident he knows the right price to lend at. And as you say, I reckon he would have far less of an issue collecting. 
Does anybody know what ratesetter charge their borrowers? I haven't read anything to suggest their sub-prime/junk to be honest and, given how long Ratesetter has been going for, if it was a flawed business model I'd have expected problems to have arisen by now.
Could it not be the case that it's simply cheaper and/or less hassle to borrow from Ratesetter rather than going to a mainstream bank?
Could it not be the case that it's simply cheaper and/or less hassle to borrow from Ratesetter rather than going to a mainstream bank?
Where does it state these platforms target sub prime?
When I got a loan from zopa a few years ago it was due to it being the lowest rate on a comparison site and had no early repayment charges. I could happily have got one from any bank, or used a CC but would've cost more.
As far as i'm aware the rates are assessed per applicant like any other lending.
Maybe it's changed in recent years since rates have fallen..
When I got a loan from zopa a few years ago it was due to it being the lowest rate on a comparison site and had no early repayment charges. I could happily have got one from any bank, or used a CC but would've cost more.
As far as i'm aware the rates are assessed per applicant like any other lending.
Maybe it's changed in recent years since rates have fallen..
200Plus Club said:
Quick summary of what said?
I caught it this morning. The bits I picked up were"They use the same credit scoring system as the banks. They offer lower lending rates than the banks. They've been going since 2005 so if there were any flaws in their business models they would have been identified by now."
I would still be interested in finding out why P2P borrowers are supposedly a higher risk than those that use mainstream banks.
Countdown said:
200Plus Club said:
Quick summary of what said?
I caught it this morning. The bits I picked up were"They use the same credit scoring system as the banks. They offer lower lending rates than the banks. They've been going since 2005 so if there were any flaws in their business models they would have been identified by now."
I would still be interested in finding out why P2P borrowers are supposedly a higher risk than those that use mainstream banks.
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