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Lending Club Loans - What difference a year of maturity makes?

Posted by Anil Gupta | Sunday June 16, 2013, 6:32 pm | Categories: Lending Club

Last year, I covered the different loan status with the loan issued year in my blog post Lending Club Loan Issued Date and Default Rate. Over an year has passed since that analysis, so I am interested in finding out how the loan defaults change with an extra year of maturity.

The two charts below show the loan status of defaults and fully paid as a function of loan issued year as of May 1, 2012 and June 3, 2013 respectively. As most of the loans issued in 2007 and 2008 had matured by the end of 2011, there is little change in the defaults and fully paid status for such loans. Of particular interest are the loans issued between 2009 and 2011 and how a year of maturity has impacted the defaults and fully paid status of such loans.

The table below shows the change in defaults and fully paid between May 2012 and June 2013 for loans issued between 2009 and 2011.

Change in Loan Status with about One Year of Maturity
Loan Issued Year Increase in Defaults Increase in Fully Paid
2011 335% 226%
2010 65% 138%
2009 13% 75%

As the table above indicates, the largest increase in defaulted and fully paid loans is observed in the youngest loans, those issued in 2011. The loan defaults decline less rapidly with the increasing age of loans. The fully paid loans decline at much more moderate pace compare to defaulted loans.


Key Takeaways
  • The least matured loans are at higher risk of defaults and their default risk declines significantly with extra year of maturity.
  • Purchasing matured loans with good repayment track record from secondary market can help significantly reduce the default risk.
  • The purchasers of new loans on secondary market should demand higher discount on face value of the loan due to significantly higher default risk.

Comments: (2)

Steve | Monday July 1, 2013, 7:46 am
Anil, great analysis - thank you for the effort. In a similar vein I was wondering if you have looked at performance by loan grade by month? I'm guessing it follows some type of bell curve and would be interested in seeing defaults when loans have passed certain milestones (e.g., for 60 month Grade E loans 50% of all defaults happen in the first 18 months, etc.). Are you able to generate that type of line graph from the data? Thanks!
Anil Gupta | Monday July 1, 2013, 10:53 am
Steve, I haven't looked at performance by loan grade by month directly. But some of my previous posts on my personal blog Random Thoughts may provide you insights. A few recent posts on this topic are: Lending Club Loans - Months of Payment before Default Lending Club Loans - Defaults with Loan Age, Part I Lending Club Loans - Principal Paid Back and Defaults

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