Wednesday, April 29, 2009

Real interest rates

Zopa Home page

I've said before that Zopa, by the way it works will better reflect market interest rates. Still not involved myself in any way, but interesting to note the 8.8% average return over th last year.

Posted by inbreda @ 01:30 PM (1534 views)
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8 thoughts on “Real interest rates

  • well I do it. the rates are dropping like a stone since just before christmas. the high rate reflects that last year they were prety high when interest rates were 5% and credit was super suqeezed.

    I’ve also been hit by shed loads of defaulters (as you would expect). which kills you returns. so basically there is (as always) no such thing as a free lunch

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  • Rates on zopa are unsecured lending rate to individuals and should reflect the much higher risk. If either the borrower didn’t pay (they sell your debt to an agency which pays 10p in a pound) or zopa went bust (agreement still enforceable, but collection will be a nightmare in practice) you don’t have the £50,000 FSA guarantee to fall back on as you would have if case of bank deposit.

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  • stillthinking says:

    Zopa is the equivalent of a 100% capitalised bank i.e. they are lending purely from a capital base (if you were to take the view that Zopa is a bank rather than a middleman). Banks create matching credit/deposit pairs from nothing, credit creation using their capital base to absorb defaults, basically a large multiple of their capital base. Accordingly, a bank would always make a larger profit and be able to offer a lower rate than Zopa.

    Zopa’s future success depends on lending non-existent money being more expensive than lending “real money”, which will never be true.

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  • Surely only a fool/someone who can’t othewise get credit would borrow money at 10% p/a. Can’t help thinking it is exploiting people that really just need to stop spending.

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  • Must admit – the reason I have not got involved is for the reasons quoted above. It does seem that Zopa is no more than a building society, the main difference is that if a BS messes up on its assessment of credit risk, it goes out of business. If Zopa mess up, it is the individual fronting up the money that gets hit. Has always made me too nervous – particularly in the current environment – to get involved. Nice idea – shame about the reality.

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  • yep nice idea – but not only has the horse bolted but its in a field somewhere in the dordogne!

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  • Surely only a fool/someone who can’t othewise get credit would borrow money at 10% p/a. Can’t help thinking it is exploiting people that really just need to stop spending.

    As with credit cards…..

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  • Maybe a little bit of Cosa Nostra. If the loan is not paid back is the lender going to get his gun out?

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