Monday, July 16, 2012

Lending Club Loan Amount and Interest Rate


Average Total Amount Funded

The chart below shows the average loan amount funded as a function of loans length and loan listing date. I made the following observations from this chart:
  • The average loan amount for 36 month loans dropped 11% due to the introduction of 60 month loans in Q2 of 2010.
  • The average loan amount for 60 month loans has almost doubled (95%) while only 26% growth for 36 month loans since the introduction of 60 month loans in Q2 of 2010.
  • Since the introduction of 60 month loans, the average loan amount for 36 month loans has been hovering around $10,000 level. Recently, the average loan amount for 60 month loans is achieving a plateau around $20,000.
I wouldn't be surprised to see Lending Club introduce 84 month loans with target average loan amount around $30,000 in near future. Actually, it would be great  if Lending Club could introduce 84 month convertible loans for business purpose that would convert to equity upon default once SEC defines the crowdfunding rules for the JOBS act.


Interest Rate

The chart below shows the number of loan listed in the first two quarters of 2012 as a function of loan amount funded, interest rate and loan length. The size of the Blue and Orange dots shows the number of loans listed with 36 month and 60 month respectively. I made the following observations from this chart:
  • Most of 36 month loans are concentrated in lower left quadrant, primarily loan amount under $20,000 and interest rate under 18%.
  • Most of 60 month loans are concentrated in upper right quadrant, primarily loan amount over $16,000 and interest rate over 12%.
  • In order to build a high return portfolio with lower and predictable risk primarily with 36 month loans, some 60 month loans of loan amount over $20,000 and interest rate over 18% will need to be added.


Loan Amount Funded and Interest Rate

As we see from above charts and discussions that analyzing loans with all combinations of loan amount funded and interest rate can become unwieldy. The following analysis divides the loan amount funded into $5,000 buckets (8 buckets or bins) and the interest rate into 2% buckets (11 buckets or bins).

The table below shows the number of 36 month and 60 month loans issued with each combination of loan amount and interest rate. For each loan length, the darker color area represents the higher percentage of loans issued with that combination of loan amount and interest rate. I made the following observations from this table:
  • Most 36 month loans are issued for loan amount up to $20,000 ($19,999.99 to be exact) and interest rates between 6% and 16% (15.99% to be exact).
  • Most 60 month loans are issued for loan amount between $5,000 and $25,000 and interest rates between 10% and 22%.

As the loans for amount greater than $25,000 were not issued until 2011, the number of such loans are still small to show up in the higher percentage of loans region in the table above. The table below shows the number of 36 month and 60 month loans issued in the first two quarters of 2012. I made the following observations from this table:
  • There is much more concentration of 60 month loans for amount greater than $25,000 in 2012.
  • Most 36 month loans are listed for loan amount up to $20,000 and interest rate between 6% and 18%.
  • Most 60 month loans are listed for loan amount between $10,000 and $35,000 and interest rate between 12% and 24%.

Key Takeaway

  • As default profile of 36 month loans is better understood at present, a portfolio of primarily 36 month loans can be complemented with 60 month loans for loan amount above $20,000 and interest rate above 18% to increase the average interest rate of portfolio beyond what can be achieved with only 36 month loans.
The big news this week in Peer to Peer Lending world was that Lendstat decided to discontinue providing analytical tools for p2p loan filtering and the reason of its termination of service is unknown other than service provider's fatigue. Even though, I have not used the service personally, I noticed a lot of lenders relied on LendStat to make p2p lending decision and were caught off-guard. Based on Peter's comment on his blog post Lendstats Loan Filtering is Down ... Permanently?, it appears that there will be a few new choices on the horizon to fill the gap.

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