Zopa

In message , John Smith wrote

When I looked a year ago the deals for lenders didn't look that good. The headline interest rate appeared to be competitive until I looked at the commission and bad debt provision.

Check that you are not paying commission on bad debts. The "typical" interest is paid gross so you also have to factor in tax, if applicable A 6% figure could easily fall to 2 or 3% which you should be able to get elsewhere with less risk..

The interest rates are whatever you decide to set them at. If you set them too high there are fewer takers and your money sits there doing nothing because it doesn't get lent out.

I invested £1,000 in Zopa in December 2005, and added a further £500 in March 2009. I've just checked my account and the total value of the investment is now £1,884.57. That includes £21.88 in bad debt and £75.75 in late payments.

ISTM that the problem with Zopa is that it doesn't scale.

Most of the lenders and borrowers are very small.

It isn't worth the aggro if investing a couple of grand and it isn't worth the risk if investing 200 grand

YMMV

tim

In message , Chris Blunt wrote

Approx 4.5% per annum if you are standard rate tax payer but with borrowers not paying its 4% of the capital still at risk.

According to the Zopa site the bad debts are currently running at 0.15% but a few years ago they were 28 times higher. One bad year could result in zero profit.

Is the risk really any higher if you invest a large amount? You can limit the amount of money that you lend to any one borrower. I think the default is £10 to any single individual.

I've no experience simply because I've no money outside my pension otherwise I'd use them. The issue for me is fixed rate investing for

3/5 years when base rates are at emergency lows and likely to rise, also if governments choose to inflate their way out of debt. This risk is reduced by the fact that, unlike a fixed rate with a traditional bank/building society where you have to wait until the end of period to receive your capital, your borrowers via Zopa pay interest and capital back monthly on a standard repayment basis.

Lending to the highest credit scored borrowers (A*) gives - A* after Zopa's 1% fee = 6.8% A* bad debt = ~0.6% Gross = ~6.2%

Compare this with the risk free rate from gilts of 0.93-2.28% for similar duration lending - istr that the worst bad debt rate in the 1930s depression was ~3%.