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I planned to blog in commiseration with Tom about being denied for a loan. Tom was denied for a Zopa loan and I was rejected for a GE Money Bank credit card through Amazon. GE Money Bank took 10 days to tell me that they could not verify my identity despite the promise on Amazon.com of a 30 second approval process. I have a 800 credit score and provided all information including a phone number and they could not verify my identity. They did not bother calling to verify and customer service told me the process is computer automated. Ten days for a computer program to return results? I doubt it…

Sorry /Rant Off
I’ll skip the remainder of my planned rant about Amazon’s relationship with GE Money Bank Read the rest of this entry »

Glenn Chapman wrote an article about P2P lending which can be found at Yahoo.com News. Included in the article were Prosper.com, Virgin Money, Kiva, and Zopa. Below are a few excerpts from Glenn Chapman’s article and my comments. Glenn Chapman begins the rehashed material article with a great feel-good tag line:

The Internet is directly connecting investors and borrowers, letting them take banks out of the lending equation and put their money where their hearts and dreams are.

Never mind the details that Zopa is actually adding a layer of bureaucracy between the bank of the people involved rather than removing it in its US based model:

Zopa feels US investors are steering clear of risk so, in contrast to its London-based service, the firm guarantees lenders will get their money back. Lenders at Zopa put their money into the equivalent of certificates of deposit, selecting borrowers they want to direct funds to and picking interest rates from pre-set ranges. Zopa banks on its borrower-screening savvy to minimize losses.

On to the Prosper.com information listed in the article because this was my reason for posting about Glenn Chapman’s article in the first place…

If a Prosper borrower fails to pay back a loan the default is reported to credit agencies and eventually sold to collection agencies. The default rate on Prosper loans is a meager three percent.

There are several items related to Prosper.com that people complain about 1) censorship (see my article on Prosper editing Wikipedia and the comments at the WSJ) 2) poor collections (link to one of Prosper’s Top Lenders Collections Issues) and 3) the default rate is higher than expected and advertised.

Prosper claims the default rate is 3% which is only technically true by the Prosper.com definition of a default and includes all loans — even very recent ones. The 3% default figure does not take into account that the average three-year loan is only less than one year old. Prosper statistics on Lending Stats can easily prove this. Take a look at the below graph generated from LendingStats.com:

Prosper’s statistics are technically correct per their definition — less than 3% of Prosper loans have been put in the status of “defaulted.” However, for a Prosper loan to go into default, it must be more than 4 months late and only once per quarter are all loans which are more than four months late are classified as defaulted.

Considering that the average age of a loan listed currently at Prosper is only 284 days (approximately 9.5 months) and that it takes four or more months to be considered in default, there are many more loans that are going to default in the near future. See this prosper statistics page which shows default rates on loans originated in the first several months of the site to be in excess of 20%. That is right, the default rate is probably going to actually be more than 20% after three years. A default rate of 1 in 5 loans is horrible. Banks would be out of business, but Prosper does not share in the risk only the people lending.

How Many Prosper Loans are Late? Read the rest of this entry »

I returned to the Zopa lending site today for a second impression after my initial review of Zopa. I noticed something that knocked my socks off about Zopa’s business model of social lending — some borrowers are not paying interest after receiving “help” from lenders. In fact, some borrowers are “paying” negative interest at Zopa! In other words, they are receiving money for having borrowed money. This is an amazing development in P2P lending!

The proof in the Zopa homepage screen shot below. I cropped out part of the screen (red line) to make the graphic smaller and added three blue checks to show you the borrowers that I am highlighting below as examples. Click the thumbnail below to see it in more detail.

The three borrowers that I am highlighting (blue checks in graphic) are:

1. TinaM who is borrowing $5,000 to go back to school with a started interest rate of 9.99%. Currently TinaM is receiving help of $70.
2. wlaffin who is borrowing $5,000 to pay off credit cards at a stated interest rate of 12.99%. Currently, he is receiving help of $66.
3. Rugsaq who is borrowing $10,000 to grow his transportation business at 12.99% stated rate and is receiving help of $70.

Note that the links are to the profile pages which do not include the loans and the help amounts. The loans, interest rates, and help amounts are listed in the graphic above.

Calculating the actual interest rates…

Read the rest of this entry »

In honor of Prosper.com’s post mentioning the wisdom of crowds, I have decided to allow the readers of Personal Loan Portfolio to decide where I invest my next $500*. The poll is listed below…

Update: People’s Choice Poll Results and Analysis Posted.

Should I invest my next $500 in P2P loans at Prosper.com, Lending Club, or Zopa or skip P2P lending all together and invest in Read the rest of this entry »

Zopa, the P2P Lending company from the UK has now opened its virtual doors in the United States. Zopa has been providing a P2P marketplace in Italy and the UK for some time now. The rates that they are offering to borrowers (currently starting at 8.75%) for unsecured loans are quite low and can go as low as nothing with help. The rates provided to lenders, although greater than a government CD, are not outstanding, but Zopa’s differentiating factor from other P2P lending sites is that Zopa loans are guaranteed.

To summarize and simplify Zopa’s somewhat complex model, let me walk you through the steps as a lender — How Zopa Works:

1. Register and open an account with one of the member credit unions.
2. Lend money to the credit union at a flat and guaranteed rate which is higher than a CD, but is also backed by the FDIC up to $100,000.
3. You pick a small portion of your return (called help) and give to a particular borrower(s) to lower the borrower’s monthly payments.

So again it is a guaranteed flat rate of return which is greater than a 1 year CD, unless you choose to lower the return to give the difference away. The return is less than you might earn with Prosper or Lending Club, but you do not take on the credit risk, so your principle is not at risk. You are lending money to the bank and not directly to the individual in this case. So to inject the P2P aspect of the lending, Zopa allows you to give away a bit of the differential between the rate at which they loan out the money and interest that they are paying you. So if you loan Zopa, er, rather the credit union via Zopa, lots of money, you can discount the rate at which your uncle, bother, or sister (or the girl who has a cute picture — and I expect to see lots of attractive pictures posted at Zopa) borrows money by you giving the borrower a bit of the return to lower their payment. According to the marketing material, everyone wins. Well, as long as the lender is happy tying up their money for a full year at rates just slightly higher than a government bond – or less than government bond if the lender prefers to give more juice to borrowers. And of course Zopa wins who takes no risk on the transaction since Zopa is actually a middle man between the credit unions and the individuals.

The True Irony of Zopa

Did you catch that last bit? My review of Zopa is that it is ironic that a web 2.0 P2P lending site is actually serving as middle man between borrower and bank and lender and bank. Zopa has injected themselves into the middle of a transaction that you could have more directly entered. Very ironic, but at least they do seem to offer good rates and an interesting concept.

Update: Zopa Borrowers Receiving Negative Interest Rates on Loans

More than ironic… What is the point of using Zopa lending to a relative? If your purpose is to gift a relative some money by lowering their rate by lending your money at less than the going rate, might I suggest you simply gift the relative some money instead and cut out the middle man?

Read the rest of this entry »

I recieved my informational email from Zopa announcing that they are in the testing phase. Zopa is promising to be different than the existing Person to Person lending sites such as Prosper.com and Lending Club in some interesting ways:

• No risk for investors.
  Your funds will be federally insured. No more worrying about whether your borrowers will pay your loan back.
• Pick who you want to help.
  Investors will choose exactly who they want to help.
• Set your rate.
  Investors will choose how much they want to earn, up to a ceiling.
• No waiting.
  Borrowers will get their loans immediately upon approval.
  Lower your monthly payment.
• Borrowers can actually reduce their loan payments after they’ve borrowed. They’ll do that using rich profiles…

How will we do all this? By using some very cool technology and a terrific partnership with leading credit unions. More coming soon! And we do mean soon…

I am very curious about how the federal insuance will work. I want more details on that. It seems like that will encourage reckless lending. “Rich Profiles” sounds like a great cconcept for borrowers but again I need more information to effectively evaluate this. The other two bullet points do not seem enough different to shift the market.

Zopa is also requesting potential borrowers sign up to assist with the testing phase.

We could use some borrowers to pound on the site, take out loans, and make sure all our bells and whistles are…ringing and whistling.

If you were thinking of borrowing on Zopa, have good credit (FICO 640+), and are a U.S. resident 18 or over, drop us a line:
questions@zopa.com

Edit: Zopa was mentioned in a WSJ article today and in the WSJ blogs where the comments are critical of Prosper.