To be clear, when I say ‘bad’ I mean the debt was written off.
All my Zopa loans are just £10 in size, which means the impact isn’t too great.
The money thief bad debtor was even kind enough to pay back £1.24 of my hard-earned cash before he decided he’d paid enough.
Nonetheless, this new evil sponger bad debtor brings my total losses to £26.81. I put £1,000 into Zopa in total, which means my bad debt has now hit 2.68%.
Quite a chunk!
Do not mistake Zopa for a normal savings account! Read one of my earlier articles for more on the pros and cons of Zopa.
Interestingly, all loans that went bad were made within a month of each other, in late summer 2008. The rates achievable were higher then, too.
Perhaps more desperate people than usual were coming to Zopa then? Or maybe there was some blip in Zopa’s credit control at that time – I am just speculating, and certainly have no evidence except my own data.
I do feel three bad debts in such a short period is at the least unlucky when I’ve invested only in the safer markets, but again it’s statistically meaningless.
However, Zopa said last month it has seen write-offs rise slightly, and it emailed us lenders accordingly. It has also created new pages to help lenders understand bad debts.
The Zopa email said amongst other things:
We publish expected bad debt rates so that lenders can take account of future losses when setting their interest rates. The new analysis shows that despite very low historical levels of default, we’ve seen those levels starting to rise in line with our expectations over time.
More recently however, we’ve also seen a lower than expected recovery of arrears in certain markets. So while our data samples remain small and conclusions are therefore less clear-cut, we’ve decided to increase our forecasts of bad debt for three of the markets.
Two of the markets affected are C markets, which I don’t invest in. However the other one where Zopa is modifying its expectations is the 36-month A market, which was where my recent bad debt originated:
(I hope this table from Zopa shows okay on all browsers – please leave a message in the comments if it doesn’t!)
Zopa recently announced it had hit 300,000 members. That’s great – I just hope they’re all aware of the risks.
To be clear, I’m certainly not cross with Zopa at this stage. I think it is a bold experiment and that Zopa is worth trying if you’re a money geek, you know what you’re doing, and/or you can afford to lose some of your investment. But it’s still unproven at this stage, so don’t go crazy.