Borrower loaned 12k in june in financial difficulties!

Very interesting, thanks for pointing this out aju.  Currently, I'm running 1.8% on missed payments in Zopa Plus.  Early days, but I wonder how this compares with others?

Z+ is a very different beast to the Classic offering. Expected bad debt around 5% PA. So about 1 loan in 250 EVERY MONTH. D&E loans especially bound to include people whose credit risk is much worse than can be discovered in DD. Zopa can't be a picky when lending at 25%!

Personally I monitor late debts (measured in capital outstanding) as a proportion of interest earned (will be net of defaults when these occur). The statistic quoted (late %) is distorted (too low) by loans whose first payment is not yet due. It will be distorted the other way when a significant proportion have run to term as late / defaulted loans will remain O/S.

Just looking at Z+ (sorry, needs analysis of all time loanbook). I am at about 36% late at the moment on this measure, expected would be 40% long term, so this looks good. However, on Thursday it was up to >80% (half the lates then have now repaid).

HTH

PM

Still having old school - non safe guarded loans - that have a proportion of iffy loan states I wasn't really being alarmist, I had just read zopa's blog entries and found it a bit ironic.

At the moment of my £1000, of returned funds, punt that is only very recent Its the only one that's truly missed then 1% is not that bad - I think I checked that I've already got £17 back in interest (before tax @ 20%) so that's covered that £10 already.

Of course there is a long way to go yet ;-)

You'll find that such things are quite routine in unsecured lending to consumers. Regrettable but that's the way life is, though hopefully Zopa does eliminate the vast majority of applications where that would otherwise happen and where the borrower should have expected it at the time they applied, and I'm confident that they do.

You may even find sometime that a borrower uses money from a loan to pay for a bankruptcy filing, though I'm not aware of any cases where that's happened specifically at Zopa. The bankruptcy filing fee is quite costly so borrowing without intent to repay is one way people raise the money for it. Less likely for the IVA or DRO forms of insolvency because they are cheaper. Over the years at Zopa I've had at least one borrower who has used each of those forms of insolvency.

You'll also find that occasionally a borrower will vanish soon after borrowing, suggesting that they never had any intention to repay. Seems more common among younger borrowers who presumably have less established ties and assets.

One of the psychological aspects of debt problems is unwillingness to recognise the issue and sometimes people just pile on new debts to repay others as part of the evolution of things getting to the no longer sustainable point. Other times a person will apply before job loss without disclosing, or won't actually have knowledge of a pending job loss. Zopa does enough lending volume that the uncommon things like job loss soon after taking out a loan become routine.

If you're not familiar with this you might find some reading of the Bankruptcy & Living With It section over at MSE of use. If even the slightest glimmer of a thought about posting something critical of a potential or actual insolvent person there crosses your mind please read this before doing it: the place is for helping, not judging, and that's also what insolvency law is for: helping people in a mess to recover.

So try to be as relaxed as you can about these things, they are inevitable and overall they are not likely to have a huge effect though debt collection will be a significant part of your total returns, more so at lower interest rates than high. This refers to rates over time, not on individual loans at the same time. That is, 10% vs 5% today is likely to mean that the 10% loan has higher default probability but the same borrower might get 5% or 10% in different years just to the way market rates for unsecured lending change over time. 1% lost to defaults will be a bigger portion of the 5% rate than the 10% one.

I agree unsecured lending at 25% you will have some defaults. You can do due diligence but this only tells you so much. As somebody said somebody may look fine on paper but behind the scenes have a) impending job loss, b) off credit rating agency systems debt, c) illness, d) have no intention of paying the loan back, e) be about to be stung with a ccj, f) die, g) emmigrate and flee their debts h) be about to file for a cva or bankruptcy i) have other financial affecting problems such as gambling addictions, drug addictions, giving money to family members etc etc.

The downside of lending people money is you are at the whim of their life problems. You just need to hope that the rate of defaults as a result still makes lending worth while. Z+ seems good so far but not long enough yet to make a comprehensive judgement and in any case default rates can always change irrespective of past performance.

Re message 4, I now have total balances of £161.14 on loans in arrears of my Z+ and total interest received of £139.49. I know it is early and many of these will pay (only 2 are more than a month in arrears), but I hope to see this moderate as it isn't a great start!

- PM

Swapping credit card debt at 19% to a ZOPA 5 year loan at say 12%, repayable with no penalty makes very good sense.