ZOPA - lend/borrow money on an open/personal market
If anyone would like to be referred to Zopa by me the referral bonus is £50 which I will split with you (takes about 2-4 weeks after you've deposited to be credited).
Sign up via this link and hopefully it will track OK / referral will be paid:
For a long time now I've been meaning to get around to checking out ZOPA:
Zopa - Loans from people not banks
To quote their site:
Apparently ZOPA stands for 'Zone of Possible Agreement' and refers to the mechanism of matching up the rate that lenders want to lend at to the rate that borrowers want to borrow at. Sounds vaguely similar to Betfair in a lot of ways from reading the FAQs.
Zopa is a marketplace where people lend and borrow money to and from each other, sidestepping the banks.
It's a smarter, fairer and altogether more human way of managing your money, where both borrowers and lenders get better rates.
So... yes I've been meaning to look into 'investing' in ZOPA for a long time now as a way of diversifying my investment portfolio. I think the site has been going for at least 3+ years and back then it did sound like a very good thing to get into.
The general idea is you deposit a lump sum of money and then you can lend out between £10-£25,000 over a fixed term (I think 3 years is the standard) and the money gets paid back in monthly installments with interest added on. You don't lend out all the money to one person, it gets split between a large number of people in (at least) £10 chunks, so that cuts down on the risk of default/bad debt. There is a lot of information available as well about bad debt rates and from what I understand that allows you to 'factor in' how much you can expect to lose from bad debt whilst you're lending.
Has anyone else used ZOPA at all? I was thinking about joining up and perhaps depositing £2k to start with just to see how it goes. Are there any pitfalls/things to watch out for? Any advice for someone starting up with ZOPA?
EDIT: Some research notes so far...
Bad debt rates historically high for 2008/9
Perhaps to be expected given the economic climate, but for tranches lent throughout 2008 the bad debt levels have exceeded the expectations set out by ZOPA for that period. cf http://talk.zopa.com//index.php?showtopic=5558 http://uk.zopa.com/ZopaWeb/public/le...-its-safe.html (expected default rates from current arrears over double the estimate)
Don't lend money on the listings section that you can't afford to lose
Lending money on the listings section is kind of like the ZOPA equivalent of US facing / offshore books! The listings section allows you to lend money out on an ad hoc basis to people who make a direct appeal for loans, usually because they're ineligible for one reason or another to obtain lending via the ZOPA marketplace. As a result the chance of bad debt is higher. The listings make for interesting reading though viz why people want the loans and why they can't get the money on the markets.
Last edited by munk; 04/01/2012 at 18:35.
Never used it but one of my close friends has, although he only dipped his toe in with a few hundred a couple years ago IIRC. He seemed to think it was worthwhile, next time I speak to him I'll ask him for an update.
I have not used it but my Dad has I think, he definitely looked into it, I will ask him about it.
I think if you had £2k to "invest" though you would do much better trading shares. There are plenty out there who would generate 6%+ a year in dividends, and also have a very good chance of making 10% in capital gains sooner, once up 10% sell your stake amount and buy another. Repeat until Pension has been amassed.
Have a plan and stick to it
Cheers yes that would be great.
Originally Posted by Fella
Well I do have the majority of my 'pension fund' (use that term loosely!) in investment funds already, a portfolio of around a dozen different funds at the moment. I was thinking of ZOPA as a way of diversifying really and as an alternative to savings/bank accounts for a 'medium term' return as it were (3yrs compared to more longer term (5+) for the investment portfolio).
Originally Posted by Andy
I say 'alternative' to savings/fixed rate accounts/bonds, but reading through the forums I did notice one person's signature saying along the lines of 'ZOPA is NOT an alternative to fixed rate or long term savings accounts, if you think that then you're not ready to use ZOPA'. Not entirely sure what they mean by that just yet, but from what I've read so far I imagine it's the fact that it's not quite as simple as investing a chunk of money in a long term fixed rate bond and sitting back and seeing the interest come in regularly (or at maturity), there are other factors like bad debt/risk management and lending fees to take into account. (edit: this explains a bit more http://talk.zopa.com//index.php?showtopic=4625, basically the return on investment isn't as 'steady' or 'constant' as a savings account due to the way that loan repayments, bad debt and fees affect the return.)
Do quite like what I've read so far though. It does mean tying up money for an extended period (36 months I think is the minimum period), but you do get a steady stream of income back from it as monthly repayments. I also quite like the idea of having to actively manage the risk and factor in bad debt rates and fees.
I think I'll probably go in with something smaller to start with just to see how it goes, maybe £1000 and see how it pans out.
As an update to this after snootyjim requested some more info here:
I deposited £2,000 into Zopa back in March this year (4x£500 I think it was over a few months) and started lending out in chunks of £10 to people on 3 year loans.
The basic idea is you set up a lending offer and specify in it which markets you want to lend to (a*, a, b, ..., c and 'y' for young) and over what period (36 or 60 months). I just went for 36 months because at that time there was no way to get your money back quickly so figured tying money up for 3yrs was the best option (you can actually get your money back quickly if you need it now since they introduced a new feature called 'rapid returns' just this month).
You set the interest rate for each different market on the lending offers page (so set a rate for each of a*36, a36, etc) and as you do that it tells you roughly what kind of interest rate you can expect after bad debt/fees/etc. Importantly it also shows you whether the interest rate you've set for each market is inside or outside of the 'zopa' (zone of possible agreement) so you know how likely it is that your offer will be accepted. It's a bit like putting in a queued bet at Betfair really, the closer your offer is to the market price then the quicker the offer will get taken.
I think initially I set the interest rates fairly low for each market (ie inside the zopa for each market) and so the initial money got taken fairly rapidly which was what I wanted. After that I started to be a bit less competitive with the interest rates and on a monthly basis I adjust my rates so that the rates are just outside the zopa for each market and any money that is repaid back to me each month will slowly trickle out at a decent rate.
So far it's gone very well and I am thinking of putting a bit more into it after I've done it for a year to see how it goes on. I've not had any bad debt so far touch wood, and there's just one loan in arrears (they have come to an agreement for repayment, all of which is handled by Zopa re debt management etc).
Currently I have 246 loans going out to a*/a/b/c/y, 125/88/24/7/2 loans respectively to each market. Generally the way I set my loan offer up I try and stay just outside the 'zopa' so that my money gets lent out in a 'trickle' but at a decent rate. I aim for the A* market since they're the most credit worthy and less likely to default on payments and then I set my rates up for the other markets so that they pay an equivalent 'net' rate to the A* market.
So first of all I set up my A* market rate so it's just outside the 'zopa'. At the moment that means a rate of 7.2%. From that I expect a 5.7% net return (after bad debt/fees/etc). I then adjust all the rates for the other markets (A, B, C, Y) so that the net return is also 5.7% (which results in rates of A=7.2/B=7.7/C=9.6/Y=11.9).
The only concern with Zopa really for me right now is the fact that your money is not covered by the FSCA like normal banks where you can claim compensation if the bank goes bust. I'm not entirely sure what would happen if Zopa went bust, it is complicated in as much as you ARE lending to individual people, but those loans are made via Zopa and money is held with Zopa... it is hard to guage but I've had no reason to contact them at all whatsoever so far about anything which is a good thing I think. They just seem to do the business setting up the loans based on my lending offer, take their fee for doing that and everything's good touch wood.
All in all though I would recommend Zopa. Here is my referral link if anyone wants to sign up via that then I get £50 I think it is after they lend out £2k or more:
I can help you out with getting started if you need it but generally it's fairly straightforward just following the info above.
I remember looking about 2 years ago at this and im pretty sure the agreements stand between you and the person who loaned the cash there is a thread on the zopa forums about it all explaining how your money is safe if they go bust.
Originally Posted by munk
Cheers, yes I was thinking that as I was typing it out originally, would be a headache chasing up hundreds of debtors! Hopefully will never come to that, will go and find that thread you're talking about.
Originally Posted by zenmaster
Well i see someone revived this thread, so thought I would pitch in.
I've only had my ZOPA account going for a number of months, and sofar I am happy with it. It provides me with a relatively safe means to save money each month, in which I like the fact that I cant withdraw it straight away(although they have started a rapid return service).
Sofar, I think the average return I have had is 7.8% before tax, and am yet to experience any bad debt woes.
I like the idea that I trickle in money each month, and it gets lent out in chunks of £10.
The only thing I would say is that I may start taking an active approach in managing my ZOPA, for example, if >90% of my money is lent out and earning interest, I may attempt to hike my rates slightly over the ZOPA, to see if I can lend out money for more return. I think doing that, i will need to set myself a fallback of say no less than 15% is sat their doing nothing, otherwise it would somewhat drastically reduce my return.
For us AP'ers, unless you have a huge bankroll, or are finding that your MB income is peaking, looking for another investment avenue, or evan a means to trickle money into an 'savings' account with decent rates of return, then this is definately not for you.
I dont have a large sum in ZOPA, but its as good a place as any to send some loose change at the end of the month, to lock away for a few years. I also do some share dealing/trading in my spare time as well. Also, since Munk has his referral link above, if you are considering this, then feel free to PM me and you can have £30 of my £50 bonus.
Just copying this over for those who cant be bothered to search for it.
What happens if Zopa fails?
In the unlikely event that Zopa goes out of business, we have made a number of arrangements to take care of lenders’ funds:
- Any existing loan agreements you have are made directly between yourself and your borrowers. Zopa does not form part of these contracts, so they remain legally binding and your borrowers will continue to make repayments to you under the terms of your loan agreements with them.
- Your holding account forms part of a segregated bank account at Royal Bank of Scotland to which neither Zopa nor its creditors have any claim. Any funds you have in this account are safe.
- Also in a segregated account to which neither Zopa nor its creditors have any claim, Zopa has deposited funds to cover the cost to lenders of any future collections activity by our credit collections agency. The value of this fund is reviewed monthly and is directly correlated to the total loan repayments outstanding, including those that are not currently in any default status. We have a contractual agreement with this collections agency in which they have agreed to manage any collections activity required in return for these allocated cash reserves. The cost to lenders of collections activity will therefore not vary should Zopa fail.
- We believe that the lender fee would generate enough funds to run the system to manage repayments. The funds allocated to the collections agency are in addition to this to provide for collections of late repayments.
[edit as slight grammar correction highlighted]
That's not so bad then. I was going to say it's all well and good having the contracts being binding between the lender and borrower, but the biggest cost to the lender in the event that Zopa folded would be associated with the fees paid to Zopa for collection of bad debt - BUT as it says there the money is ring fenced for that so that's not so bad at all.
I think I'm going to probably put some more money into Zopa around March next year, create a new lending offer and start being a bit more aggressive with my approach on that offer and target higher risk groups primarily rather than A/A*. Also might try out the listings as well.
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