This is just a quick note to say that Lending Club appears to have reduced interest rates for borrowers by around half a percentage point. I first noticed this when I logged in to select notes for investment last week, and have seen mention of it elsewhere on the web. Rates now range from a low of 6.39% for those with the best credit to high of 21.64% for the most risky borrowers.
As an investor, I’m not crazy about this change, as I’ll earn a bit less while shouldering the same risk that I’ve always faced. Prospective Lending Club borrowers, on the other hand, should be thrilled with this move. If you’re looking to refinance your high interest debt, now appears to be a good time to do so.
I’m still looking for an announcement to provide some context for this change, but haven’t found anything yet. I’ll update if/when I know more.
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Dan,
As John says, if a borrower is so called “quality borrower” then he have would plenty of options in the traditional debt markets – banks, credit unions etc. will after him offering loans at good rates. Then why would such borrowers look towards LC or for that matter any other similar platform. Isn’t it the case that platforms like these are essentially the last avenue for those not worthy of getting the loans from traditional sources?
Sorry for sounding critical, but, I am just trying to absorb the logic behind this new concept..
Since the rates went down I noticed a lot more available loans to invest in.
There are actually over 200.
I was always curious how someone could qualify for a LC loan and not have better options with lower interest rates. I see this change as a correction in supply/demand. When I first learned about LC I applied for a loan, but found I could easily have a lower-cost loan using traditional offers. Now I am an investor on a small scale.
DJ: I do see these sorts of loans, but they typically don’t fit my lending criteria. From the borrower perspective, though, it might make sense if the rate is competitive.
It may be the case that demand for Lending Club loans has fallen off with the new CARD Act provisions going into effect. When banks were still jacking up interest rates and minimum payment percentages, many people seemed to look for P2P lending to provide a more predictable, transparent lending structure.
I don’t know all the details of the CARD Act, but I think one basic premise is that some of those practices will be curtailed.
DJ,
As a former Prosper lender, we found students to be tricky… their income sources are unreliable. I mean, “my part time job at the campus coffee shop” just isn’t long term, reliable income. (Remember, we’re making three year loans, using purported facts that we know about you now to guage your repayment ability in 35 months.)
Second, the payment terms aren’t that flexible — not compared to student loans, anyway.
Third, you can default on a P2P loan and get rid of it during a bk proceeding. You can’t do that with traditional student loans.
So, as a lender, I don’t like P2P for students.
LC has just put their loans on sale. I guess this means that they weren’t finding enough people to borrow money.
Mr. Supply you have Mr Demand holding on Line 1.
Nickel,
You might not like the lower rates (what lender does?) but as a reformed (not former yet) Prosper lender, there’s something we should keep in mind:
Interest rates in and of themselves are adverse selectors. Would your rather get 6.39% return on your investment, or would you rather get 30%? Well, we all know that (the potential for) increased returns comes with increased risk. Would you recommend that a person in need of a loan borrow at 30%? If not, why not? What would you think about the finances and long-term ability to pay of a person who borrows at 30%?
Well, at the other end of the risk spectrum, us Prosper lenders had been complaining about the lack of quality borrowers. Well, quality borrowers need low priced debt options if it is financially prudent for them to borrow. I think I’ve read that Lending Club actually has more lending capital than they have suitable borrowers. And that tells me that Lending Club is pricing their rates too high for borrowers, and that this drop is welcome if LC wants to draw in more quality borrowers.
Sorry! I meant Lending Club.
Lending Tree is not Lending Club…
In your experience, have you seen many people borrow money through Lending Tree to pay for education?
If a student is not eligible for a Stafford loan, it looks like the lower rates through Lending Tree would be better than some private student loans offered through larger banks.
Thanks!