Alternative to Banks ?

[Beachcomber]

Internet-based loan market Zopa is one of the most promising candidates to come blinking into the sunlight. By cutting out the bank middlemen and much of the overheads, borrowers get lower rates and lenders get higher ones. It's a bit like peer-to-peer music swapping, except what is being swapped are money and interest rate promises.
Lenders approach Zopa and stipulate the return they would like on their money, and are paired up with credit-checked borrowers who are willing to pay the given figure. All the contract details are arranged electronically, but are fully enforceable. Zopa uses credit recovery companies for bad debts.
Average pre-tax returns for lenders are currently a whopping 9.1%, which includes Zopa's 1% fee. Borrowers have to pay that rate, plus a flat £94.25. Each lender's money is spread across a portfolio of at least 50 similarly rated loans, so even if one loan is not repaid that will only be a small proportion of any one lender's money.

---

LINK

[omnipleasant]

This sounds like a recipe for disaster to me.

Old-fashioned mutuals are the way forward.

[Beachcomber]

I remember my parents having an account with a local 'Friendly' society.

My dad would pay a set sum each week into his account and after a qualifying period could 'borrow' up to 10 times his savings (repayable at minimal interest).

Are these schemes still around ?

[yord]

Yeah , theyre called loan sharks

[greenergrass]

Yeah the Fire Service run a scheme as described. You pay in a sum of money, deducted from your wages and then you can borrow depending on the sum you have saved.

Birmingham City Council are currently attempting to set a scheme up (not sure if it is actually up and running) to help people who are on low incomes, who have difficulty getting a loan, etc. One of the better things Bham have managed to do!

[omnipleasant]

Yeah they still exist, and will probably become more popular again with all the crap that's going on.

[peakman]

Jan 30, 2009 11:28:04 GMT @omnipleasant said:

Yeah they still exist, and will probably become more popular again with all the crap that's going on.

Yes such a scheme is up and running in Sheffield and did not building societies begin in a similar way, also the co-op. Bankers? We can live without them and we certainly don't need to beggar ourselves on their behalf.

[yord]

Its only the poor that need banks. Shoots the gits and thats problem solved

[yord]

oh and the government needs banks otherwise theyd have a hell of job parting you from your money

[yord]

shoot them aswell

[mars33]

"Average pre-tax returns for lenders are currently a whopping 9.1%"

Is it being run by a Mr Maddof by any chance?

[peakman]

Shoot 'im aswell ;D

[limeylily]

"Average pre-tax returns for lenders are currently a whopping 9.1%, which includes Zopa's 1% fee."

And what protection do "investors" have (or "lenders" if you prefer) if the outfit goes down the pan?

[Beachcomber]

And what protection do "investors" have (or "lenders" if you prefer) if the outfit goes down the pan?

Zopa's bad debt rates are extraordinarily low at 0.2%, about a tenth of that incurred by banks even in normal times. That is because Zopa uses a double-checking system, first with a normal credit check through agencies such as Experian or Equifax, and then follows up with an underwriting check which may include calls to employers. Zopa only takes on the best 50% of borrowers, with more disqualified on affordability criteria rather than credit quality grounds.

The attractions for lenders are that you can choose the return you will get, knowing that overheads are kept to the absolute minimum. Clearly, that means those who choose 10% returns will be allocated those borrowers who are towards the higher end of the risk assessment schedule and cannot get money within Zopa for less. If you choose 5%, you will get the very best credit risks.

[Marshall]

Slightly off-topic, but I heard a congresswoman on TV last night telling people who have been foreclosed on to stay in their homes. She said housing loans have been so cut up into pieces and resold that many of the end lenders can't even find the deed. No deed = no debt.

[yord]

" If you choose 5%, you will get the very best credit risks."

ie Zopa scores for the other 4.!%

[lawrence]

Sounds like a good deal. This is not particularly new though , I read about this several years ago.

[Victor Meldrew]

I remember my parents having an account with a local 'Friendly' society.

My dad would pay a set sum each week into his account and after a qualifying period could 'borrow' up to 10 times his savings (repayable at minimal interest).

Are these schemes still around ?

Beachcomber, I remember them too, I was just a nipper in the late 1960s and went on the bus with my dad on a Saturday or Sunday morning to one of these friendly societies. I was very young, so didn't really take notice of what was going on. I doubt they are still going these days. With credit having been so easy to get hold of in the last three decades, I shouldn't think there was any need for this sort of savings/loans club. These societies existed in an age when working class people had virtually no chance of getting a loan off the local bank manager (strict, rigid lending criteria back then), so they were there to 'look after their own'.

That is because Zopa uses a double-checking system, first with a normal credit check through agencies such as Experian or Equifax, and then follows up with an underwriting check which may include calls to employers.

Hey, that exactly how our company works too. If a customer wants to open a credit account, I first run a check on them through Experian. Then I send the details through to our credit insurers to see if they are willing to insure them. Exactly the same double checking procedures.

To date, I'm dealing with bad debts claims on our Sales Ledger totalling £240,000.