Are you comfortable with Zopa?

Ok I got hold of the latest (1/2/2018) Public data file and it would seem that zopa's data here is not as clearly defined as it perhaps should be. I found that the following issues were a bit iffy.

1. There are a number of "Actives" that were a tad late to be called actives i.e last payment date >124 days old (4 mths) i would have expected them to go to Defaults. There are some that are so late and also have paid nothing its laughable.

2. There were also some "Active" loans that seem to have last payment back in march having paid back the loan then.
I would expect them to be marked as completed.

There are quite a few more anomalies with the data so it seems to me that anyone using this public data may not be getting the full picture from it anyway.

So on to the reason I came here and what I found out regarding the defaults payment prospects is as follows. The table simply shows average the &age amount outstanding relative to loan values for each year overall.

Year__%
2005 31%  N/A
2006 37%  0%
2007 40%  0%
2008 46%  0%
2009 35%  46%
2010 40%  47%
2011 37%  19%
2012 42%  38%
2013 48%  20%
2014 61%  3%
2015 73%  0%
2016 82%  13%
2017 93%  21%

The last column is my own figures but it should be born in mind that most of the defaults I have are in Plus as SG does not register as easily as non SG loans data.

From this simple check I think it might be deduced that as the loans get older more of the capital is returned but there may be a  cut off at around the 35-40%. I chose this as the number of defaults in 2005 is much smaller that later years. One thing to be aware of though is that this is only an overall year on year value. Some loans may be better served than others.

I'd be happy with an increase in inflation - especially around September! - that at least increases my pension way better than the pay rises I was getting in the period prior to retiring in 2007 ;-) (My company, one of the largest comms companies in the Uk was fond of bonuses rather than pay rises as bonus's did not have a drain on ongoing pension costs). Of course CPI rather than RPI is a real pain so increase that one rather than RPI 

The thing is until someone manages to raise the general interest rates above the abysmal levels they have been for the last 10 years all of us will be be chasing the dragon for want of a better phrase. In my own case I am just trying to get the best rates I can with the least amount of risk that I am comfortable with. My goal has always been to try and negate the effect of inflation tax in any spare cash I may have so by definition its always a double edged sword for me. 

Credit cards are not an issue for us since we paid off our's and only ever use them now to our advantage. Credit companies have not made a penny from me since 2007 thankfully - except when I go abroad and use them to get cash and forget to pay the miniscule interest they charge before I return home. Have done it twice and it's cost me 40p so far so I try not to let it happen too often ;-).

Are we actually sure we even came out of the recession - doesn't feel like it somedays.

I think it's better to think of Zopa as being 95% liquid rather than thinking it as being 100% liquid.  There are always a few loans left behind after any sale for various reasons.  An A2 2.1% chunk is going to be hard to resell.

As a recent(ish) investor with P2P I found that Zopa was my first port of call when starting. It is the one everyone knows about, and appears regularly in the press when P2P is mentioned.

After a year or so I realise that  the returns are not that great and the risk is higher than I expected as a beginner. Defaults are showing 3.3% on my book. Also I found my funds put into long term loans that I would not normally choose. It was only when I looked at my loan book that I saw some three and five year loans. I would never have chosen that timescale now. As a result I am abandoning Zopa, although I will break even after costs.

Now Zopa have a secondary market, the longer loans aren't as big a deal as they were when I first joined.   Quite a few people repay early, so you'll find that after (say) 2 years you'd have more than half of your money back.  The 1% selling fee isn't as painful if you are prepared to wait for the bulk of it to come back.   But Zopa definitely isn't suitable as a short term investment.

lending @ 0.94% does not make any sense at all because it will make a loss if there is 1% default rate.

mixing 0.94% loans with high risk loans is also pointless the return of 0.94% is just far too low of contributing profit.

I get what you are thinking but to be honest you are probably not seeing zopa for what it really is. Its a platform for people who want to lend to people who want to borrow some money some will inevitably fall on hard times, some will pay up some will fall by the wayside. In the old days that was a pure thing in that I lent to who I wanted relative to what rate I wanted and I worked out the spread I needed to make some money and not lose money. All that is now achieved by zopa so that's not my decision who gets to borrow or who I lend to I just get a choice of product that has a simple range of possible rates within a given potential bounds. With the SG there was no risk to me as such the only risk was that the rate was not good enough. Thats all gone now there is no SG and the risk is higher that I may get more defaults that cost but I feel zopa has the lending structured in a way that gives me as good a chance as anyone to achieve a given rate that I then decide is what I want.

Now we've had quite a discussion going on here on comfortability and to be honest that can be quite a subjective thing. My own reason for lending on zopa is I get a slightly better rate than I am getting with my current accounts - well recently it has become a lot better since the banks reduced their rates on current account propositions. Whilst the rates are not as good as some other rates found elsewhere some of the risks elsewhere are higher. For me I am taking some risks outside of P2P in the equities area but again my risk in those is more lent for income rather than share price improvement. 

I am having some issues with increased defaults recently but I did expect that in non SG covered propositions, to counter this, I did make sure I was diversified well across Core and Plus and as a result have probably been less hit than some seem to be on here. My instinct at the moment as I have said is that once the initial lending has matured into fully relending funds then this will settle down.

So for me the 0.94% compared to 27+% at each end of the spectrum is merely interesting but not really that relevant if the engine is ensuring the headline rates are still possible. I would add that these rates are only really valid over a period of at least 12-18 months at least and best looked at over the whole loan cycle. Lending on Zopa is not a short term proposition in my view.

For interest the average active loan rate is 4.8% for Invest and 5.6% for ISA on present active loans for me if that were to be the final result then its not a bad rate. Of course defaults may reduce that over the period.