Monday, August 06, 2012

Lending Club Loan Amount and Credit Grade


Average Loan Amount and Total Amount Funded

The chart below shows the Average Loan Amount and Total Amount Funded as a function of Credit Grade and Year of Loan Listing for 36 month Loans.
  • The average loan amount and total amount funded for 36 month Loans has risen for most Credit Grades in last 5 years.
  • The  average loan amount across all credit grades has risen by 40% with most rise occurred for Grade E (80%) and Grade F (55%) loans between 2010 and 2012.
  • On annualized basis, the total amount funded across all credit grades has risen by 475% with most rise occurred for Grade F (1,868%) and Grade E (1,261%) loans between 2010 and 2012.


The similar chart for 60 month loans is shown below for the average loan amount and total amount funded w.r.t. Credit Grade.
  • The average loan amount across all credit grades has risen by 78% with most rise occurred for Grade F (94%) and Grade E (79%) loans.
  • On annualized basis, the total amount funded across all credit grades has risen by 270% with most rise occurred for Grade F (691%) and  Grade E (403%) loans. Interestingly, the number of 60 month loans with Credit Grade A fell by 52%, most likely due to credit grade and interest rate assignment method used by Lending Club.


The two factors most likely contributed to higher percentage growth of average loan amount, number of loans and total amount funded for lower quality (Grade E through G) loans. First, the lower loan volume in 2010 for Grade E through G loans, of which the percentage is calculated. Second, the more demand from lenders for higher interest bearing, i.e. lower quality loans.

Only $6.8 million worth of Grade E through G loans were issued compared to almost $160 million worth of Grade A through D loans with 36 month term in first six months of 2012. Only $35 million worth of Grade E through G loans were issued compared to almost $200 million worth of Grade A through D loans with 60 month term. The longer the term of loan, the worse the credit grade.

Volume by Loan Amount and Credit Grade

The chart below shows the number of 36 month and 60 month loans listed in first six months of 2012.  Very few 36 month loans were issued with credit grade F and G. Similarly very few 60 month loans were issued with credit grade A. As mentioned in my previous post Lending Club Loan Length: Best 60 month spread with B4 Grade Loan, the lack of 60 month credit grade A loans has to do with how Lending Club assigns credit grade.


Most loan amounts appear to be in the increments of $500 or $1,000. It will be interesting to see if there is a relationship between such loan amounts and default rate.

Key Takeaways

  • Lending Club continues to be successful in attracting higher quality borrowers to use online peer to peer lending platform.
  • The lenders looking for higher returns through high interest rate loans will need to consider longer horizon 60 month loans to build a diversified portfolio as there is not enough volume and total amount funded for such loans with 36 month term.
With Personal Loans, Borrowers Hear Gift and Lenders Get Resentful - A good reason why whenever someone asks me to lend them money, I tell them to apply on Lending Club for loan. I ask them to let me know the loan number and I will try to fund some amount.

1 comment:

  1. Great post. I am writing a paper on south dakota loans and I have been doing as much research on loans as possible. This was very helpful and informative. Thanks so much for sharing Anil.

    ReplyDelete