Historical Loan Data and Adjustments
I decided to switch to the historical loan data file downloaded on July 1, 2012 for further analysis of Lending Club loans. The latest data file provides information on 62,383 loans. A final list of 57,937 loans was generated for further analysis by making following adjustments:- 2,749 loans were deleted that were listed as not meeting the current credit policy.
- 3,629 loans were deleted that had status of In Review. These loans are fully funded but haven't been issued yet.
- 24 loans were deleted that had status of Partially Funded. These loans were only partially funded before the loan listing expiration.
- 372 loans were deleted that were listed after April 7, 2008 and issued before Oct 13, 2008. This is a new adjustment that was not used in cleaning the last historical loan data file. I recently discovered following verbiage in Lending Club prospectus [PDF] that led me to believe that these loans do not represent the true 'crowdfunding' nature of Lending Club platform.
"From April 7, 2008 until October 13, 2008, we did not offer members the opportunity to make any purchase on our platform. ... ... Borrower members could still apply for member loans, but those member loans were funded and held only by Lending Club."The latest historical loan data file downloaded July 1, 2012 contains additional 7,866 loans compared to the data file downloaded May 1, 2012.
Loan Length
The chart below shows the loan volume by quarter and by loan length for past three years. The size of the circle indicates the loan volume and the size of pie indicates the volume of 36 month loans (Blue) and 60 month loans (Orange). I made the following observations:- The loan volume grew 15.5% in the second quarter compared to the first quarter of 2012. In prior years, the second quarter growth over the first quarter was 28.4% in 2011 and 34.8% in 2010. The loan volume grew 80.4% in the second quarter of 2012 compared to the same quarter of prior year. The second quarter growth was 90% in 2011 compared to the same quarter in 2010. Lending Club continues to enjoy healthy growth in loan volume though growth is slowing.
- While the volume of 60 month loans grew 20.2% in consecutive quarters, the volume of such loans fell 8.3% on year over year basis. Only 19% of total loans listed in the second quarter of 2012 had 60 month term compared to 37.3% in same quarter of 2011. As this loan volume data shows, it appears Lending Club has ratchet down on listing of 60 months loans. Peter Renton also made similar observation in his comment on previous post Lending Club Loan Length and Default Rate.
Interest Rate
The chart below shows the average interest rate by quarter for 36 month and 60 month loan lengths during the past three years. I made the following observations:- The average interest rate for both 36 month and 60 month loans is rising quarter over quarter and year over year indicating more lower quality loans with higher interest rates are being issued with time. Considering that loan volume is also rising, it can be inferred that more and more borrowers with lower credit quality are being funded by lenders.
- The average interest rate in the second quarter of 2012 for 36 month and 60 month loans rose 7.9% and 4.7% respectively over the previous quarter. In 2011, this quarter over quarter rise was 4.8% for both 36 month and 60 month loans. It appears more 36 month loans with higher interest rates were issued compared to prior year.
Key Takeaways
- Lending Club continues to enjoy healthy growth in loan volume though growth is slowing down.
- Lending Club has ratchet down on listing of 60 month loans. In my opinion, it is a good decision considering the uncertainty in default risk for such loans.
- As lenders are becoming more comfortable with peer to peer lending, their willingness to fund lower quality loans with higher interest rates is rising for 36 month loan term.
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Great article and charts Anil. You can clearly see the reduced proportion of 60-month loans in the first chart. The increase in interest rate you mention is evident - after hovering between 12.5% and 14% (average for loans issued in the previous two weeks) for most of the last year, it is now consistently over 14% and sometimes even over 15%. The mix of loans is changing into a slightly higher risk profile.
ReplyDeletePeter, thanks for the comment. I agree, it appears that LC loan profile is moving toward higher risk loans. I just wonder what will be the default rate for these new loans.
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