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The Masked Tulip

Peer To Peer Lending - How Safe?

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Does anyone know anything about the safety for investors of peer to peer lenders such as zopa and others? They seem to have boomed in the past 10 years.

I only ask as I glanced an article - forget which paper - over the weekend whose headline suggested that investors be wary of them in any potential downturn in global markets.

I had forgotten about it but this morning, on the fivelive money programme, they also raised the same question. They had the zopa boss on who stated that the firm had gone through 2008 without a problem.

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hey man.

I'm getting a good return on zopa. in treating it as a high risk investment though and just letting is roll.

if it keeps going at 5% and quick with little or no inflation then it will be a nice little nest egg.

I've also used funding circle and in on target to make approx 0% on the £1k I put in there.

some others on here have faired much better than me.

I suspect one of them will go belly up and lots of people happy to take a 5% return will be up in arms about how they were miss sold the product.

it's all high risk for me. don't put your money in unless you want to gamble.

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I am a zopa lender

No FSCS guarantee

The return alone indicates that it is a higher risk

But the very fact that I lend so little (£10) to any one borrower is sufficient for me

I wouldn't put every last penny I had in there, but I happy with the bit I have

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I pulled all mine out recently. Just a bad feeling due to people tightening their belts. I couldn't help but wonder if behind the scenes, they are leveraged up to the hilt along with almost every other financial institution. The difference is, there's no FSCS guarantee. If you go to their website it is stamped with "Most Trusted". I'm sure it is.

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I've read the odd article recently that suggests >50% of P2P could be for debt consolidation. In a Recession what would happen to those loans...?

And 2016 is likely to have sharply lower growth than last couple of years. Maybe outright Recession.

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I've read the odd article recently that suggests >50% of P2P could be for debt consolidation. In a Recession what would happen to those loans...?

And 2016 is likely to have sharply lower growth than last couple of years. Maybe outright Recession.

A link would be much appreciated if possible

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If peer-to-peer lending is a future disaster waiting to happen, which is my view also, then know this - no one forced anyone to lend or borrow for business purposes.

That some dead-money savers, are waiting for such financial distress to occur, so as to take position/equity at more sensible prices - and perhaps even see them forced to put their homes on the market and seek lower asking prices (for HPC).

Run campaigns NOW, protest to some authority, if you are anti-capitalist and against the freedom of individuals making their own commercial decisions; which are usually higher risk anyway, and too often outbidding those of us who are patiently waiting for better value, and distorting values in the wider commercial world where others fear to tread at such prices. Not all the violins 'they're all victims' stuff after the event.

It's a market, not an excuse fest. I've never had any investment in P2P... yield chasing for it, or borrowing from it.

No doubt the excuse givers would want another £100Bn printed up to rescue some oldies rattling around in a house they bought 3 decades ago, worth £800K+, if they were to lose £1K in P2P.

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5% for loans to perfect strangers over the internet.

But its OK because its to a portfolio of perfect strangers.

Banks were always criticised because of the agency problem between management and the owners of capital i.e. shareholders / bondholders. The agency problem for managemebt must be an order of magnitude greater for these peer to peer companies.

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the mathematical risk makes it look bad

upside can be no more than the interest rate lent at, even if every loan is paid on time in full

downside is 100% of the money you put up

go into with that mindset and do as you will

as a small part of an overall portfolio, I think it has its place

if someone else thinks it is too risky, I can understand that

no one from a P2P site is going to come round to your house and force you to participate

if you do participate and you make a few bob, great stuff: if you lose the lot, don't go squealing for a bailout or compensation - on your head be it

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I just logged into my zopa account - prompted by this very thread

some interesting stats from the dashboard - interpret them as you will

Your lending options

3.8%Up to 3 year loans

Projected return with re-lending on.

Switch to this rate(up to 3 years)

Speed of lending

There is currently £1.6m queuedto be lent in this market.

We're lending out an average of£335k per business day.

---

5.0%Up to 5 year loans

Projected return with re-lending on.

Selectedup to 5 years

Speed of lending

There is currently £1.54m queuedto be lent in this market.

We're lending out an average of£995k per business day.

Edited by pipllman

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the mathematical risk makes it look bad

upside can be no more than the interest rate lent at, even if every loan is paid on time in full

downside is 100% of the money you put up

go into with that mindset and do as you will

as a small part of an overall portfolio, I think it has its place

if someone else thinks it is too risky, I can understand that

no one from a P2P site is going to come round to your house and force you to participate

if you do participate and you make a few bob, great stuff: if you lose the lot, don't go squealing for a bailout or compensation - on your head be it

Exactly but there's a few on hpc who have the mindset that people can take risks, even extreme risks, profit from them (as many a P2P lender here does), but if it fails they want to award victimhood to them. If they take losses it's a market. It's not all win. It should NOT be losses = award innocence and scandal and 'begin the compensation bailouts' from other taxpayers. Daft.

Edited by Venger

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I have a 6 figure sum invested across 3 P2P platforms. Have made over 20K so far and am happy with risk spread.

Lifetime return on FS after almost 4 years is 7% per annum. Loans are spread out over 2500 different businesses. The most I have lent to one business is about 800 quid

Zopa is approx 5.1%

Rate Setter approx 5.5%

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I've about 10% of my cash in p2p and of that, about 90% in RateSetter. At least they have the provision fund. I did an initial 5 year loan and now every month those repayments are recycled at the 1 year rate.

Pretty much everything is in a bubble right now. Nowhere else to put my money. Shares? Gold? Property? Under the mattress?

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I just logged into my zopa account - prompted by this very thread

some interesting stats from the dashboard - interpret them as you will

Your lending options

3.8%Up to 3 year loans

Projected return with re-lending on.

Switch to this rate(up to 3 years)

Speed of lending

There is currently £1.6m queuedto be lent in this market.

We're lending out an average of£335k per business day.

---

5.0%Up to 5 year loans

Projected return with re-lending on.

Selectedup to 5 years

Speed of lending

There is currently £1.54m queuedto be lent in this market.

We're lending out an average of£995k per business day.

Are those rates net of defaults?

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I've about 10% of my cash in p2p and of that, about 90% in RateSetter. At least they have the provision fund. I did an initial 5 year loan and now every month those repayments are recycled at the 1 year rate.

Pretty much everything is in a bubble right now. Nowhere else to put my money. Shares? Gold? Property? Under the mattress?

I just checked the ratesetter provision fund its at 1.6x default rate so defaults would have to rise by 60% before default payouts start dropping below 100% of loss.

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Lent a bit on Zopa and Funding Circle several years ago. Zopa was ok. Took a couple of hits on FC early on as wasn't distributed well. They didn't seem very focused on credit risk vs autobid considering the business profiles so I pulled it. Partly my own naivety and that may have improved. The sector's being regulated which will probably result in a small number of big platforms.

Rates are now too low in my opinion. Investing depends whether you think risk/return are positively correlated, that more risk (volatility) implies higher expected returns - I don't. I see it as a long-term punt on timing, FSCS protection or a bailout when it blows up. But each to their own.

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Are those rates net of defaults?

No

Defaults on zopa (for me) are low just now

I watch the 'late payment' rate on a monthly basis and have an uncle point in mind which, if late payments reach that level, I will use the cash in early option and get out (if I can).

My uncle point could be higher or lower than others would set their's at

That said, if I lose every single penny I have put in there, I will be disappointed, but not devastated.

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No

Defaults on zopa (for me) are low just now

I watch the 'late payment' rate on a monthly basis and have an uncle point in mind which, if late payments reach that level, I will use the cash in early option and get out (if I can).

My uncle point could be higher or lower than others would set their's at

That said, if I lose every single penny I have put in there, I will be disappointed, but not devastated.

Have you considered what happens if even 10% of people try to cash in at once? When I used Rapid Return I noticed it was certainly not rapid. (Although it was faster than knocking on people's doors and asking for my loan back.)

I should add, I found it a good service overall and was pleased with the returns, and might inch some money back that way again if markets improve.

Edited by adamLancs

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http://www.zopa.com/lending/risk-data

Not sure how that calculate expected deaults but its at 3.38%.

Ignoring that and looking at the actual data, deaults are very low at present. However, they peaked at 5.54% in 2008 and took three years to recover. I guess rates were higher then so you could absorb the defaults.

% seems to be based on number of loans rather than monetary amount.

So 3.8% for 3 years on Zopa vs. 2.56% FSCS insured savings bond.

It seems likely that some of that 1.24% premium will be eaten up by defaults irrespective of business conditions / success of the platform. Is a 1% premium good compensation for the additional risk?

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http://www.zopa.com/lending/risk-data

Not sure how that calculate expected deaults but its at 3.38%.

Ignoring that and looking at the actual data, deaults are very low at present. However, they peaked at 5.54% in 2008 and took three years to recover. I guess rates were higher then so you could absorb the defaults.

% seems to be based on number of loans rather than monetary amount.

So 3.8% for 3 years on Zopa vs. 2.56% FSCS insured savings bond.

It seems likely that some of that 1.24% premium will be eaten up by defaults irrespective of business conditions / success of the platform. Is a 1% premium good compensation for the additional risk?

its up to each individual to decide based on their own tolerance of the risk of losing all the money they put up versus the extra they might earn if all their borrowers pay up

no coercion is involved!

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Sure, I'm just thinking out loud.

Adams point about a rush to the exit is interesting.

I bet allot of people signed up for 5 years at 5% with the expectation of cashing out early - perhaps monitoring the default rate. Kind of makes sense to do this as early exit fee is just 1% so still higher than bank accounts.

Wonder if there will be liquidity problems in event of default rate popping up. No easy exit because no one to sell on to. Suspect admin / exit fee would rise to entice new enterants in to buy up the debt. So in practice the investment would behave as tradable bond.

Default rate of 5% in 2008. Apparently realisable rates then were much higher then +8% so you had a margin for error back then.

Edited by growlers

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