ZOPA - lend/borrow money on an open/personal market

[dk7]

Anyone care to report back how this has turned out for them over a longer term? I've been having a dig for alternative investments as my AP bankroll (£20k) is more than i virtually ever have in play and my cash isa for this year is already maxed (@ a paltry 3.75% on 2 year fix).

I'm also considering entering the murky world of funds/shares/bonds etc but wanted to see how this matched up.

Having looked at the zopa site it seems rates have fallen some what since last year. A* 36 reportedly returning 5.7% after fees and before bad debts. The downside for me is this is taxable - so i'd be getting a net return of 3.42% @ 40% tax. Feel a bit better about my risk free ISA now!

Best risk free 3 year fixed rate account is 4.3% gross (2.58% net) which means Zopa is only offering a 0.84% net premium for the inherent risks involved (no FSCS accreitation). I suppose a key question are bad debts tax allowable? Ie if say a £10 tranche becomes a bad debt can you set that off against the interest earnt before tax? If not i think i may head down the fund/share route.

[munk]

Must admit I haven't really sat down and done the maths and it's awkward because I've deposited small amounts over the time I've been in here but generally speaking I'm happy enough with the way it's going, probably around 5% return overall I would think very roughly. Should really do the maths at some point!

Re those questions you would be best off reading the Zopa forums for answers to be honest, my feeling FWIW would be that you would be able to set bad debt / losses off against income for the purposes of tax assessment. If you're lending more than a certain amount another thing to bear in mind is you have to declare yourself as a commercial lender I think and the tax implications may change for that I don't know.

[munk]

Generally can report this is quite a success for me as an alternative to a long term savings account, getting around 6% interest overall (that's the overall %age pa after bad debt/fees/taking into account reduction of initial rates based repayments over time etc) which isn't too bad compared to 3-5yr bond/savings a/c rates - Zopa definitely isn't a long term savings account, but it is similar in as much as it's a long term investment and the return is of a similar risk profile to a savings account (despite not being FSA regulated, funds are ring fenced so if the worst happened and Zopa went down, the funds / lending contracts would still be valid).

If anyone else is using Zopa I would highly recommend this workbook for managing your lending and making it easier to visualize your current 'position':

Demonstration MLB Spreadsheet - Zopa Talk

Very impressive spreadsheet and gives you all sorts of detailed information about your borrowers/exposure/markets/bad debt/everything.

See the Zopa thread also:

ZOPA - lend/borrow money on an open/personal market

[DireEmblem]

I'm slightly on the fence now with zopa - fair enough the base rate is still at an all time low, buy the rates i've been receiving appear to be getting lower and lower.

I am considering evaluating zopa against some monthly return income funds.

In your 6% above, are you taking tax of that as well?

[munk]

I'm slightly on the fence now with zopa - fair enough the base rate is still at an all time low, buy the rates i've been receiving appear to be getting lower and lower.

I am considering evaluating zopa against some monthly return income funds.

In your 6% above, are you taking tax of that as well?

Check out that MLB workbook, you can see your overall return net of everything (including tax). Takes a bit of setting up but I would say as a rule of thumb if you know your way around a workbook you will be ok. I'm still 'groking' the workbook to be honest though (for want of a better word heh) because it is quite considerable and there is a chance the calculations aren't correct (although the reported 6% sounds about right - there is a section for setting taxation levels over the next 5(?) periods/years which are then factored in to calculations).

There are copious amounts of comments in the workbook though and a guide to getting started (and even a technical guide as well).