New study shows social lending a good way to cut out banks

[Bob Crabtree]

UK High Street banks are, we know, extracting a lot of money from customers with no good reason, though people can fight back, as we showed in our Hands-on guide to taking on the banks - and winning!

But have you ever considered social lending over the internet? It's an alternative to putting yourself into a bank's greedy clutches.

The whole point of social lending is to try to find a way that gives lenders a better rate of interest than banks offer - and to allow borrowers to pay less than they'd otherwise do.

And these two things, seemingly, are what it delivers.

More in this HEXUS.lifestyle.headline.

[Funkstar]

well it's an interesting idea, first time i've heard about it though.

I'll take a look at the report and Zopa itself later i think.

[nichomach]

Seems as though traditional lenders are increasingly being cut out of the loop, both here and in the developing world - have a look at the latest Peace Prize laureate.

[joshwa]

Sounds like a good way of making better interest than a savings account by lending money through zopa... but how can / does it work...?

It offers borrowers 4.8% apr, and says lenders will get 6.8% interest ...?? I guess it depends what you lend and what deals people get...

Sounds very good though

[Funkstar]

if you look at the details under the headline rates, which are 5.05% and 11.59% going by the front page right now, they are for different market segments.

the low borrowing rate of 5.05% is for those in the A* credit rating band. The lenders getting 11.59% are lending to people in the C band credit rating.

THere is also some averages in there too.

[joshwa]

I've decided to give it a go (with some of my money), and if I can get back more than 5% that my current savings account is giving me then I think it's a good thing

they are offering £30 free to trial it to lend out (may have expired)
plus people lending £1000 get free champagne

it looks like you need to lend for longer than 12 months to get better than 5 or 5.5%

and if you want to lend out at higher % to higher risk people then the "expected return" (after bad debt etc) seems to go down extremely quickly, for example if I want to lend to group c for 12 months at 10%, is says my expected return is 1% so I have to lend at 15% to get 6% return.

well anyway, I'll see how it goes... so far I'm not especially impressed...

[DerbyJon]

It's certainly an attractive idea, given the sizeable cut taken by traditional lenders. The bad debt is the key, although as a lender's cash is split between 50 or more borrowers you'd need to be pretty unlucky to actually lose money.

[herulach]

seems overly risky to me. considering you can get 10% on savings on the high street/interweb without too much trouble. (regular savers & isas) It hardly seems worth it and i imagine that most people who would fall into the A categorie would have sufficiebt equity in their pdh to raise funds against that. Osub 5% mortgage rates are again pretty easy to find.

[Funkstar]

this is though, the 10% in banks has some pretty tight restrictions, like having to have your current account with them, depositing £x - £xxx a month, preferential rate only for the first year. etc etc etc.

This looks to be for any value you care to invest.

[herulach]

Originally Posted by Funkstar

this is though, the 10% in banks has some pretty tight restrictions, like having to have your current account with them, depositing £x - £xxx a month, preferential rate only for the first year. etc etc etc.

True, but you can still get some pretty competive rates. Off the top of my head NS&I's isa is 5.5% tax free instant accessm, which is equivalent to about 7$=% if youre paying tax

This looks to be for any value you care to invest.

But the decent rates are for fixed terms and decent sums.

Id actually be surprised if these guys dont need a banking licence, as it seems to basically be a bank, or a building society/mutual at a stretch, which happens to offer fairly decent rates. Theyll still have to raise any capital they want to lend beyond what people want to deposit (i assuming borrowing demand is greater than that for saving in the current climate) from the markets, so theyll likely be making a loss on that.

Id be especially worried if they didnt have to adhere to BASEL regs regarding capital reserves, as it only takes a fairy modest amount of bad debt/mis management before youre up the creek.

[joshwa]

Thinking about this more, I'm not overly impressed, I think I'd rather keep my money in a normal bank savings account - 5.45% is commonly available, even some current accounts offer around 6% interest, yet when trying to lend money through Zopa, anytime I say I want more than 5.5% back it says that I'm unlikely to find borrowers who want to borrow it... I currently have very easy access to my savings account which gives me 5% interest, yet with zopa, I might get 5 or 5.5% but I'd have to leave it there for 12 months or longer...

[Craig321]

Originally Posted by Bob Crabtree

More in this HEXUS.lifestyle.headline.

Will be alot of problems from online lending... alot of fraud.

[joshwa]

If you shop around you can get regular savings accounts that offer 7% (halifax) or even 8.25% making it seem much more secure and rewarding saving with traditional banks.

[father smurf]

Sounds like spam to me....

[rbuxton]

I'm sorry you think it's spam.

It's not, I being deadly serious.