P2P/social lending – Advice? Anyone tried it?

Wizardskills · 13 Oct 2010 at 13:05

Over the last couple of days I have been trying to sort out my savings. The accounts that I do have money in aren’t paying a lot of interest so I'm looking into ways of making more money on my savings.

One of the things that I have stumbled upon is P2P lending. Here is a good overview of it if you haven’t heard of it (http://www.promotionalcodes.org.uk/14376/zopa-vs-yes-secure-p2p-lending-in-the-uk/). From having a brief look at the process it seems like it is quite a good way of getting a good return on your money.

Obviously I wouldn’t be putting all of my savings into one of these schemes. I would probably put in an initial £1k (which would then be spread about with quite a few loans on the site), with the rest of my savings going into more traditional savings methods - Bonds for long term investment and Savings accounts/ISA’s for more instantly available cash.

So far, as far as I can tell, these are the pros and cons of P2P lending:

Pros

• Good rate of return
• I get to choose where my money is invested
• I get to choose the investment rate
• Monthly repayments that can be reinvested

Cons

• No fixed term of investment. The loans on the site are typically for 12, 36 or 60 months. So I could have £70 tied up in a 12 month loan and £100 in a 60 month loan.
• More risky than just setting up a standard savings account.
• The amount of money that is loaned out is dependent on the number/quality of the loans available on the site. So there is a chance I could have £600 just sat in the holding account for a few months before there is a loan that I want to invest in.

Has anyone on here used site like these before, more specifically Zopa or YES-Secure? How did your investment go? Was it worth the risk? Any advice would be great.

chipperhead · 13 Oct 2010 at 13:29

I've used zopa for a few years, no problems at all and averaging 10.9%.

Vonhelmet · 13 Oct 2010 at 13:35

Is this like a credit union? Or is it different?

Wizardskills · 13 Oct 2010 at 14:01

vonhelmet said:
Is this like a credit union? Or is it different?

Yes it is very similar

chipperhead said:
I've used zopa for a few years, no problems at all and averaging 10.9%.

Ah that sounds very good. I wouldn't mind getting 10.9% on £1k just for deciding who i invest with

. Is the 10.9% yearly or over your total investment for the few years you have been a member? Also I'm guessing that is before the sites fees and tax? Do you have to put much time into it? i.e looking who will get some of your money etc? Have you experienced any of the cons I mentioned or any others that I didn't?

CocoPops · 13 Oct 2010 at 14:08

Funnily enough I've just signed up to Zopa after reading it here.
I offered £50 @ 5%

It then splits it into £10 at varying interest rates for different groups.

Figured, I'd dip my toes before putting more money in.

mlbtheshow · 13 Oct 2010 at 14:35

What happens if the person you loans to defaults on their loan?

Are you protected at all?

Or is it a case of getting a van round and loading up the telly etc

Bleek · 13 Oct 2010 at 14:47

They're credit checks are strict, I think they decline pretty much anyone that doesn't have a glowing credit rating.

You really need to put a few thousand down to make any significant gains, load it up with another few thousand each year, do it over 10+ years and you're laughing. Compounding interest is king.

It beats an ISA twice over in returns but obviously isn't risk free.

Firenze · 13 Oct 2010 at 14:51

Milkybk said:
Be a man and invest in anything with your initials.

This.

Bleek · 13 Oct 2010 at 14:56

Firenze said:
This.

Unless your name is Ben Johnson.

That won't make you a man.

mlbtheshow · 13 Oct 2010 at 15:09

Hmm, so if I put £1000 into this... lend it out at say 10% for maths sake, id get £100 annually return (minus a 1% zopa fee) so £90.

Then in theory that £90 could be put straight into other loans? So sticking in a starting balance and letting all the payments acrue and stay in there will total up nicely long term.

My misses is not happy but i might go in halves with the Father in Law if I can convince him, at a K or 2 each.

Need to read.

Wizardskills · 13 Oct 2010 at 15:20

mlbtheshow said:
Hmm, so if I put £1000 into this... lend it out at say 10% for maths sake, id get £100 annually return (minus a 1% zopa fee) so £90.

Then in theory that £90 could be put straight into other loans? So sticking in a starting balance and letting all the payments acrue and stay in there will total up nicely long term.

My misses is not happy but i might go in halves with the Father in Law if I can convince him, at a K or 2 each.

Need to read.

Yes that is the idea. However, as the repayments on the loans are put into your account on a monthly basis this money can be reinvested (if you choose to do so). So you can earn interest on your interest and interest on the "same" bit of money. Well that is how I understood it

Bleek · 13 Oct 2010 at 15:20

Well go a little more conservative on the figures at say 8% and in 9 years you'll double your £2000 on interest alone.

Add an additional £1000 each year and compounding the interest at 8% makes £15,500 after 9 years.

So you pay in £10k and make £5k.

Even better, match your original 2k each year and by year 9 you're balance (based on 8%) is £29,000 after paying in £18k.

krooton · 13 Oct 2010 at 15:21

Thoughts on MSE are mixed.

General consensus is that it's good for smaller amounts of 'gambling' deposits that you can afford to lose rather than huge investments.

jamief · 13 Oct 2010 at 15:35

krooton said:
Thoughts on MSE are mixed.

General consensus is that it's good for smaller amounts of 'gambling' deposits that you can afford to lose rather than huge investments.

Looking at their "default charts" it looks like 2-3 years ago there were a lot of defaults, but not nearly as many now. Think I'm going to put some money in and see how I get on.

krooton · 13 Oct 2010 at 15:38

jamief said:
Looking at their "default charts" it looks like 2-3 years ago there were a lot of defaults, but not nearly as many now. Think I'm going to put some money in and see how I get on.

I'd take those with a pinch of salt though, late payments and defaults rarely happen in the first 12 months of a term of borrowing (or so I've read).

Wizardskills · 13 Oct 2010 at 15:43

krooton said:
I'd take those with a pinch of salt though, late payments and defaults rarely happen in the first 12 months of a term of borrowing (or so I've read).

I can believe that. Also the recession started about 2 years ago so that may also have contributed.

Bleek · 13 Oct 2010 at 15:57

It's part of the risk for sure, if their current default rate is 3% (I haven't checked) and you lend out £50 chunks of your £1000... well, do the math, your known target versus the potential loss. It still works out as a profit and hence I use Zopa myself because I'm willing to take those odds.

Ranked1_of_1 · 13 Oct 2010 at 16:06

You've got to declare any interest to the taxman and my head is hurting trying to calculate how much interest I'll make if I'm constantly re-investing the repayments - especially if they are reinvested at different interest rates. I'm sure it's straight forward, but it's been a long day.

mlbtheshow · 13 Oct 2010 at 16:21

Can you 'not' declare this to the taxman, or is it easy for them to find out via Zopa etc?

Thats putting me off, not the fact that I hate paying taxs for everything these days... but im probably too lazy to work it out and would make a right hash of it all.

Surely if I only invest 1k per annum and make say 90 quid in the year on interest, then the tax man cant touch any of that?