Plus loan at 27.5% - morally defensible?

Indeed so. (or RateSetter?)

It all comes down to how much you trust the bad debt estimates of both. ISTM that the fact that Zopa have had lower defaults than predicted consistently since 2008 as opposed to RS consistently exceeding their estimates is significant when assessing the risk. As for the increase in risk from the change in allocation of more ED&E loans, I have experienced the same. With my 550 Z+ loans, assuming a normal distribution of defaults, with mean expected default (difference between expected and gross return) and standard deviation from the binomial distribution, my book went from 10.2% gross, 6.4% net to 12.4% gross, 7.4% net. This makes the 95% confidence value for high defaults increasing from 5.1% to 5.9%. So the increase in uncertainty is only 20% of the increased expected return.

I agree that a downturn makes the distribution non-normal, but this suggests to me that Z+ is likely to be a better investment than classic. I have been getting a 4.7% or lower expected return in classic is <2% likely under this basis on my original portfolio, but <0.2% on my current portfolio. So the higher return seems to more than compensate for the increased risk.

Of course the chance of very high (ie non-normal) defaults might skew this, but I am staying in Plus for the modest amount held in Zopa.

Its worth remembering that as far as these borrowers are concerned they did not get their loan from Zopa,  they get them through credit brokers who might be branded as loan companies themselves, whilst I don't know who they are there are some apparently mainstream companies (one a replacement for "directory enquiries") who offer loans at truly usurios rates (99.9%), so whilst 27.5% is high two points, Zopa is not branded as a "ethical" company and the alternatives for borrowers may not be any better.

I seem to be getting lots of loan parts at 27.5% but today got one at 30% ,can any one beat that,I know they probably will default at some point

I'm sure you are joking but essentially its not that simple to take a single loan, just go to loan book and check the loans over a period and you will find that there are loans lending at much more and much less as zopas loan rates are an averaged loan rate. Mind you a loan at 3% is only really 3% if you relend the returned money at 3%. Lets say you are lending in single shot mode i.e making a single £10 loan and not relending then the true rate is really just a little above 50% of the quoted rate. This is due to the capital being paid off over the period of the loan. 

For your interest, in the 57 loans I made in Classic in Oct 2016 the range was from 2.09% to 12.97% after fees, although they would be slightly higher for me as I only pay 0.5 fees.

so letts see what the loanbook says - I found it a bit difficult to sort the book by a relevant date until I stumbled on a search pattern of "2016-10" for October. I set the "Shown entries" to 100 and sorted on the "Rate" column to get the lowest and the highest amounts loaded. There were some Plus entries in there but the lowest and highest classic values gives the right spread. I subtracted the Plus entries from the total to get the number of classic loans in October.

Its a bit of a pain but it does show that the range is quite large, also I could use the listed values to get the true average, its not just the largest and lowest. I have spreadsheets that help me to do this if I was keen and perhaps the Old MLB would still give a similar result.

    goo.gl/dM50SO  (The old loanbook)

says that october lending is 5.88% but we must remember that most people would have to drop the rate on there by 1.0% (I'm and early starter and get 0.5% fee reduction) so in my case the true rate is 5.38% which is way better than the lowest and much lower than the highest.

In addition people rarely realise that the higher rates are ones that tend to get paid off quicker than the lower ones but all in all it should even out. There are more technical things to consider but hopefully you can see that zopa will give you a spread of rates that should even out to the headline rates depending on boo size of course.

Hope this helps and if you already knew this then sorry for trying to teach granny to suck eggs


For those who want to know my highest rate - july 2016 - is 27.5% (28% with 0.5% fees). Its just failed after the 3rd payment on 22/10 - cest la vie - it is in Plus so we'll see what the loss is over the next few weeks, personally 1 loss like this will be less than 1% of my Plus outlay and .1% of my total . This months interest more than covers it 5 fold. The next few months will tell on this one.

"glasshopper" you need to tread with caution!

(I'm now an oldie, hopefully a bit wiser, but sometimes I forget more so I don't need to worry as much, eyesights not that good either but fortunately thats gods gift to a large number of us, makes the o/h see me in a better light)

No, no, I'm walking on sunshine! 10.9% with Zopa plus, it feels good! What could possibly go wrong?