Friday, February 01, 2013

Lending Club Loan Volume and Borrower's Revolving Credit Line Utilization

In next few posts, I will review the loan characteristics and default rate with respect to the revolving credit line utilization of borrowers. I believe revolving credit line utilization is one of the major borrower attribute that influences the chances for borrowers to default.

Loan Volume

The chart below shows the Loan Volume (right Y-axis) and Cumulative Loan Volume % (left Y-axis) as a function of borrower's revolving credit line utilization. Almost 20% of loans are issued to borrowers who have revolving credit utilization less than 29% and 20% of loans are issued to borrowers who have revolving credit utilization greater than 80%. The loan volume rises with rising revolving credit utilization up to about 70% revolving credit utilization. A few loans have also been issued to borrowers whose revolving credit utilization was greater than 100%.

Lending Club Loan Volume and Borrower's Revolving Credit Line Utilization
The chart below shows the Cumulative Loan Volume % by loan issued year as a function of borrower's revolving credit line utilization. Do you notice a wide gap between the lines for loans issued in 2012 from the lines for loans issued in prior years? This gap indicates that borrower profile based on revolving credit line utilization for loans issued in 2012 is very different from prior years. In 2011, 18% of loans were issued to borrowers who used up to 20% of their revolving credit. The share of loan volume to such borrowers dropped almost half to 9% in 2012. Similarly, about 30% of loans in 2011 were issued to borrowers who used up 70% or higher of available revolving credit. The share of loans volume to such borrowers rose about 20% to 36%.

Lending Club Loan Volume by Issued Year and Borrower's Revolving Credit Line Utilization
These trends may indicate that quality borrowers with low revolving credit utilization are not much interested in borrowing through peer to peer lending platform. Also, peer to peer lending platform being attractive to borrowers with higher revolving credit utilization may have resulted in Lending Club relaxing the minimum credit criteria late last year.

Key Takeaway

  • If defaults and returns are closely related with borrower's revolving credit line utilization, I expect the loans issued in 2012 to behave very differently than the loans issued in prior years.

Expanded Credit Utilization Information on PeerCube

The Loan Details page on PeerCube contains additional information related to revolving credit line utilization that provides better context to lenders about borrower. For example, the screen capture below shows such information for a currently available loan that carries F2 credit grade. I typically gravitate toward reviewing information highlighted below. This borrower is carrying, on average, about $10,000 balance on each of his revolving accounts. All of his bankcards are maxed out and total credit balance exceeds $100,000.

Loan Details page on PeerCube with expanded credit utilization information.

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