More on Lending Club’s Reduced Interest Rates

As a followup to yesterday’s post about Lending Club reducing their rates for borrowers, I reached out to Rob Garcia, who is the Senior Director of Product Strategy at Lending Club. Here’s what he had to say:

As you know, we constantly monitor our marketplace to provide better rates to borrowers and great returns to investors. We keep an eye on our own market dynamics as well as the overall economy trends.

This time, we observed that defaults continue to trend lower, which gave us the opportunity to decrease rates to borrowers while preserving investors’ net returns (rate minus defaults & fees). Also, lower interest rates help attract higher quality borrowers, leading to less defaults, so it is a virtuous circle.

So there you have it… Lending Club has been able to drop their rates because borrowers have been behaving themselves. It’ll be interesting to see how the “virtuous circle” plays out in the coming months.

6 Responses to “More on Lending Club’s Reduced Interest Rates”

  1. Anonymous

    I’ve recently opened a small lending club account to get my feet wet.. so far only 1/2 of my accounts have gone through payment status.. and 100% of them have been on tme.. I was actually quite pleased and surprised. .

    I’ll keep my doubts in mind.. but hopefully it all works out..

    Note.. I only have 25 notes.. 2 which were paid in full the first month..

  2. Anonymous

    Hmm, that’s sure sounds like “spin” – that the unsecured borrowers are defaulting less so LC decided to lower the rates. Doubtful. As others have said, it’s all supply and demand. There must be more lenders than borrowers so LC lowers the rates. Don’t forget, they make money off the quantity of loans.

    And my test loan from last year, where the borrower stopped after two payments, is still “active”….

    So maybe I’ve missed it, but show me the stat’s on delinquent loans as well as ones considered defaults, and show me how the rate of delinquencies is going down.

  3. Anonymous

    I took a look to see if this change would make it worthwhile to refinance my LendingClub loan, but really, unlike mortgage rates, half a percentage point doesn’t make a big difference: in my case about 74 cents per month.

  4. Anonymous

    @Wesley, don’t forget that lower rate will also reduce the number of people willing to lend.

    @Nickel, I recently started lending on Lending Club (though I had experience with Prosper) and one of the things I look for is a reasonable monthly payment on the loan. Lower interest rates mean lower payments for the borrower, so they’re more likely to pay up. Of course, this isn’t my only criterion but I think it helps.

  5. Anonymous

    Well, they has stated that they had more investor dollars than borrowers needed, so the correct answer to that “problem” was to reduce rates, hopefully bringing in more borrowers.

    Simple supply/demand!

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