Zopa interest margin | P2P Independent Forum

dualinvestor

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Zopa interest margin Apr 23, 2016 7:38:11 GMT

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Post by dualinvestor on Apr 23, 2016 7:38:11 GMT

From the "get a loan" tab on the Zopa web site:-

Representative example

A loan of £7500 over 5 years will cost you £157.43 per month at a representative 9.9% APR.

The total cost after 5 years is £9,446, which includes £1,766 interest at 8.8% fixed and a £180 fee. The total amount of credit is £7,680.

From the "lend your money" tab :-

Zopa Plus

Great if you're happy lending at Zopa and want a higher return for more risk.
6.5%

Annualised projected return after expected losses on money lent out

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Caution is of course required in a direct comparison as the projected return is a mixture of loan term lengths, and as an aside the classic product is 2% lower. On the face of it this implies a net interest margin in excess of 2%.

Let us not be disingenious here, most lenders on P2P platforms are not here for ulturistic reasons they hope for better returns; however given that part of the whole ethos P2P movement is to move business away from profit hungry banks it is interesting to note that according to research their net interest margin is 1.5%. research.stlouisfed.org/fred2/series/DDEI01GBA156NWDB

PLEASE NOTE : The opinions and observations that I display on this forum are personal and do not necessarily concur with the proprietors of the forum. I represent no platform or other organisation in my postings and my remarks should not be taken as advice. I accept no responsibility or liability for the accuracy, content, completeness, legality, reliability of the information contained in my posts. Or for people acting or refraining to act upon them.

davee39

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Zopa interest margin Apr 23, 2016 8:22:01 GMT westonkevRS likes this

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Post by davee39 on Apr 23, 2016 8:22:01 GMT

The return on Zopa Plus is based on a blended gross loan rate of about 10% with an estimate of 3.5% reduction due to losses and Zopa fees. The actual loans comprise rates between 3% and 26%.
The quoted example is only valid for a proportion of loans, some of which will be paying into Safeguard.

I cannot see how this data can be used to estimate Zopa margins.

P2P lending is not a mutual enterprise owned by the lenders, the companies exist to make profits (which have taken some years to arrive) using a model which allows lenders to enjoy higher rates than available through traditional sources. In the absence of FSCS protection I would welcome robust margins if they contributed to a viable secure platform.

dualinvestor

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Zopa interest margin Apr 24, 2016 7:52:32 GMT

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Post by dualinvestor on Apr 24, 2016 7:52:32 GMT

Apr 23, 2016 8:22:01 GMT davee39 said:

The return on Zopa Plus is based on a blended gross loan rate of about 10% with an estimate of 3.5% reduction due to losses and Zopa fees. The actual loans comprise rates between 3% and 26%.
The quoted example is only valid for a proportion of loans, some of which will be paying into Safeguard.

I cannot see how this data can be used to estimate Zopa margins.

P2P lending is not a mutual enterprise owned by the lenders, the companies exist to make profits (which have taken some years to arrive) using a model which allows lenders to enjoy higher rates than available through traditional sources. In the absence of FSCS protection I would welcome robust margins if they contributed to a viable secure platform.

Of course the rate quoted a a representative APR is a blend of rates (although I find it hard to believe that anyone who is required pay 26% would fit into any of Zopa's credit categories), the operative word is representative and under Financial Services advertising regulations it is an average that someone should expect to pay. It also includes other charges and these were specifically excluded from my approximation of margin, i.e. Interest is 8.8%, APR is 9.9%. The return on non safeguard protected loans is estimated at 6.5%, ergo on a very crude basis by the opague nature of the platform one can only assume that the average interest minus the average return is 2.3%.

You are also right this is not a mutual enterprise although certainly in the early days Zopa was full of tosh about not giving money to banks or middlemen, but then I suppose the harsh reality of the real world has intervened. However on the face of it Zopa has a higher interest margin than the banks yet has none of its own capital at risk.

Whilst you may think this is of little relevence to us as lenders, or indeed none of our business you miss the underlying point. Elsewhere it has been reported that Zopa is out of the top 3 P2P lenders, probably for the first time in its history (according to Altfi figures), anedotal eveidence on other threads and on my own account seems to indicate a painfully slow rate of lending, potential returns on Zopa for like to like products are predicted to be significantly lower than other platforms and the APR for borrowers is significantly higher.

PLEASE NOTE : The opinions and observations that I display on this forum are personal and do not necessarily concur with the proprietors of the forum. I represent no platform or other organisation in my postings and my remarks should not be taken as advice. I accept no responsibility or liability for the accuracy, content, completeness, legality, reliability of the information contained in my posts. Or for people acting or refraining to act upon them.