Earlier this month I wrote a post about my reaction to the Government’s new “high interest” Pensioner Bonds.
For starters, I was sceptical about forcing savers to tie their funds up for either three or five years but, more importantly, I was doubtful because recently I have been able to earn far more in interest than the sums offered under the Government’s much-heralded new scheme.
Another key advantage of the account where I had stashed a couple of hundred pounds was that when I suddenly needed to access this at short notice, I was able to withdraw my funds, and all the interest they had earned, without penalty in just two days.
In my earlier post I promised to return with exact figures of the return my £250 had earned during the time it was in my account at Zopa.
After reading a report on this new type of “peer to peer” lending online account in summer 2007, I decided to try it out for myself and deposited an initial £50 to test the water.
That money went in on August 9th and my first interest payment of 5p was credited to my account just over a week later, followed by a further 21p for September and the same for October. That month, I lent to my first three borrowers.
Cautiously, I had decided to minimise the risk of non-payment by limiting my lending to £10 for any single borrower.
My first loan of £10 was part of £15,000 borrowed for one year by a 40-year-old man from South-west London to cover an overdraft.
He received my tenner at a rate of 7.2% on September 25th, made his first monthly payment of 87 pence on November 8th, representing a capital repayment of 81p and interest of 6p.
Another monthly payment of 86p followed on December 7th (81p capital & 5p interest) before my borrower was able to take advantage of the possibility Zopa offers both lenders and borrowers to end their arrangements early and ten days later of the 17th made a payment of £8.41 to clear the outstanding £8.39 of the loan plus 2p in interest.
So, my borrower was able to access the £15,000 he needed for 12 weeks for a lower rate of interest than he would have been offered by his bank while I was pleased to see my tenner returned in full much faster than I’d expected with a total of 13 pence in interest.
In mid-October I also received 21 pence interest for the £40 that had remained on offer throughout September.
Meanwhile later that week, a 29-year-old man from London borrowed another tenner from me for a year at a rate of 8.6% to make up part of a total loan of £7,000 to cover a credit card bill.
Sensibly, he was looking to borrow at a lower rate as he sought to pay off debts he had run up.
This loan, too, was paid off early and his final payment of £6.78 on February 27th 2008 returned the remainder of the loan and finalised interest fees totalling 26p.
On the same day (October 16th), another tenner went to a 44-year-old man from Wigan at 6.3% as part of a loan of £3,000 he needed to fund repairs to his driveway.
This borrower was the first to stay the course of his one-year loan term and his final payment of 86p in October 2008 completed the return of the £10 borrowed and 34p in interest.
Another advantage to the Zopa system is that, your holding account balance increases as you receive repayments and interest from your borrowers and these funds can be lent again, in my case, as they reached £10.
Encouraged by the smooth running of my account so far, in December I added an extra £100 to the pot and was pleased that by the end of the year, 13 people had borrowed one of my tenners and the remaining £20 had been lent out by the end of January.
I promised you more information from my Zopa Story so I think this has been a good start. Come back soon as I add the next instalment.
Remember, if what you have read has interested you in opening a Zopa account for yourself, you can do so with this link.