Reply to: Good news for savers

[shaunbhoy]

I've lent to loads of people and all have paid the money back, and I mean thousands of people on my loan books.

You go Prawn!!!

[AtW]

Oh DimPrawn, forgot to add one more thing that you may have ignored when making a decision to make heavy investments into Zopa...

In Russian Zopa means

[AtW]

Correct me if I am wrong but.......... I don't remember you being invited in!

I've received a personal invitation via PM from DimPrawn to borrow £50 for next 50 years, but declined due to perceived risks associated with his lending activities.

HTH

[AtW]

I think inflation is >10%, and for that reason I'm out.

And who invited YOU sir?

[TimberWolf]

I think inflation is >10%, and for that reason I'm out.

[Wodewick]

And for this reason I am out.

Correct me if I am wrong but.......... I don't remember you being invited in!

[TimberWolf]

Can you tell whether you are buying bad debt? Debt that has been passed through many hands and is unlikely to be paid by the original borrower who has done a runner? Does that debt just get passed to newbie Zoplars, before they offload it to the next newbie?

[AtW]

I've lent to loads of people and all have paid the money back, and I mean thousands of people on my loan books.

or



On one hand Zopla might help some borrowers to get loans they would be refused otherwise or get them under lower interest rate (good thing), on another it involves amateur dirty spekulators like yourself get involved making it a very bad combination.

And for this reason I am out.

HTH

[DimPrawn]

If you have good credit rating, property to back up the loan then you'll get it from bank with interest being less than 10%. Here is quick example: Tesco Loan - 7.4%.

Maybe that place Dim loves so much is full of AAA rated borrowers who hate banks so much that they'd prefer to pay 10% to Dim rather than 7.4% to Tesco, or maybe all those borrowers have something in common - they won't get loans elsewhere, ie - high risk. Spreading it by 50 quid each does not solve the problem - the whole group must be very risky by definition, that's why stores/credit cards won't lend them for less than 20%+.

Having said that I'd rather see those people borrow under 10% there than go to local money shark.

There are bands in Zopa.

The higher the risk borrower the greater the return for the lender.

You'd be surprised for example how many people (especially young people) you can't get those rates from Tesco.

I've lent to loads of people and all have paid the money back, and I mean thousands of people on my loan books.

[AtW]

If this was a bad move, I'd like to hear your alternative strategy.

I guess for you it's as good move as you can do.

If I was you I'd invest into nice US house somewhere nice and work on Internet based Plan B - send wife and kids to Disney Land

[shaunbhoy]

Having said that I'd rather see those people borrow under 10% there than go to local money shark.

Well thanks for your input Mother Theresa.

[AtW]

Not sure how much correlation there can be between Zopa borrowers

If you have good credit rating, property to back up the loan then you'll get it from bank with interest being less than 10%. Here is quick example: Tesco Loan - 7.4%.

Maybe that place Dim loves so much is full of AAA rated borrowers who hate banks so much that they'd prefer to pay 10% to Dim rather than 7.4% to Tesco, or maybe all those borrowers have something in common - they won't get loans elsewhere, ie - high risk. Spreading it by 50 quid each does not solve the problem - the whole group must be very risky by definition, that's why stores/credit cards won't lend them for less than 20%+.

Having said that I'd rather see those people borrow under 10% there than go to local money shark.

[Ruprect]

Okay, I'll try and make this simple.

Miss Poor needs £5K to pay back some credit/store cards at 25% APR. She wants to pay back the debt at most over 3 years, but of she can pay more off she'll clear the debt in a year.

Mr Rich has £5K to lend and wants 10% return for his troubles.

Miss poor borrows £50 from Mr Rich and the rest in £50 loans from another 100 lenders.

Mr Rich only has £50 exposure to Miss Poor and another 99 borrowers on his books.

It is all managed transparently (you can see the individual borrowers on your loan book), you just set your rate and that's it.

HTH

thanks

What I wasn't getting was the transparency bit - that miss poor will make up her 5k loan from 100 £50 loans. Good idea.

[Freamon]

Ok, what DimPrawn describes sounds very much like sub-prime tulipy market.

Let's revisit that:

1) rich lenders lend to people who can't afford to repay but do so in "chunks" thus in theory reducing their exposure - losses are limited

2) rich lenders think they can resell tupily loans to each other thus having liquidity, ie - they can always have money back (rather than in 3 years as per loan - assuming repayment will happen)

Nothing can go wrong? Maybe not on individual basis but if defaults happen in any large numbers then liquidity to resell this tulipy debts would disappear instantly (like it happened with subprime loans few years ago).

Other than that nothing can go wrong with this scheme to make 10% interest when safe investments pay 0%.

HTH

The risk depends on the correlation. The problem with subprime RMBS was that the valuation models didn't take into account the fact that defaults by some borrowers cause a negative effect on the value of other houses and therefore more defaults. Not sure how much correlation there can be between Zopa borrowers as there's really not very many of them, although in a recession I guess the risk goes up pretty uniformly.

[DimPrawn]

So basically you are feeling very smug at putting your cash into virtual things that can go bust at any time, stock market that can crash, some Govt bonds that can be frozen for years and currencies that get devalued due to money printing?

Instead of what exactly?

I got a range of asset classes in a range of currencies. They either have grown hugely in price or have returned a great inflation smashing yield.

If this was a bad move, I'd like to hear your alternative strategy.