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

Lending Club Loans and Credit Cards Default Rate

Posted by Anil Gupta | Sunday June 9, 2013, 3:31 pm | Categories: Lending Club

Lending Club Loans Default Rate

Last year, I mentioned in my blog post Lending Club Data and Default Rate that the default rate for Lending Club loans was 3.63% as a percentage of all loans issued by May 1, 2012. Recently, I decided to revisit the Lending Club historical loan data. The default rate of 3.46% for all loans issued by June 3, 2013 is about the same as last year. In fact, as the charts below show, the percentage of loans with different status this year are in line with that for last year.

Credit Card Default Rate

How does the default rate for Lending Club loans compares with those for credit cards?

For the first Quarter of 2013, the Charge-off rate and Delinquency rate for the credit cards were 3.83% and 2.67% respectively. For Lending Club loans, the charge-off rate and delinquency rate (payments past 30 days due) were 3.63% and 1.08% respectively. For the first Quarter of 2012, the charge-off rate and delinquency rate for credit cards were 4.38% and 3.89% while 3.65% and 0.97% for Lending Club loans

Key Takeaway
  • The default rate for Lending Club loans is about the same as last year.
  • Lending Club loans are continuing to outperform credit cards with respect to charge-off and delinquency.

Comments: (7)

Dan B | Saturday June 15, 2013, 6:46 pm
I'm not sure why this comparison is being made or why it would be of interest.............Consider that Lending Club is attempting to isolate the top 15-20% of credit consumers & make loans to them,................ whereas pretty much anyone ( & I mean anyone) can get a credit card one way or another. To then point out that the default rates for Lending Club loans are lower compared to the entire universe of credit card consumers doesn't really say much at all or anything remotely illuminating. I should certainly hope that it would be!
Anil Gupta | Sunday June 16, 2013, 9:28 am
Dan, fair criticism. As majority of loans are being made for credit card and debt consolidation purposes, it is good to know how loans fare compare to credit cards. Not everyone, like you, knows how selective p2p lenders are in making loans.
Bobby Lazenby | Tuesday June 18, 2013, 3:26 pm
This is a poor representation and could be misleading. The LC purportedly lends to only “prime” consumers. Those with higher than 690 FICO scores. I suggest you narrow your analysis to compare barrowers with similar demographics. Try to make sure you have only apples in your cart. At present it appears your have apples and oranges. Also, I don’t believe the delinquency comparison to be relevant due to divergent collection and charge-off practices.
Anil Gupta | Wednesday June 19, 2013, 8:37 am
@Bobby, with your logic, you will never be able to compare two different asset categories because it wouldn't be 'apple to apple' comparison.
New Jersey Guy | Friday June 21, 2013, 8:23 am
Anil... I think it's an interesting comparison even if it's apples-to-oranges. Bobby is correct in stating that LC only offers loans to prime. He fails to mention the interest rates charged by Credit Card Companies is considerably higher, even in prime. The much higher rates offset the additional risks of lower credit scores. With that in mind, Credit Card Companies enjoy a higher reward/risk then Lending Club investors even though their default rate is higher.
Finance Rockstar | Friday June 28, 2013, 4:37 pm
Good analysis; I have been curious how the default rate compared with credit cards, and this answers my question. This gives me comfort that LC does have a reasonable collection process. I get that CC issuers issue debt to subprime, but this is still helpful..
Anil Gupta | Friday June 28, 2013, 7:56 pm
@Finance Rockstar, I am glad to read that you find the comparison useful. Personally, I wouldn't assume the lower default rate represent better collection process. Instead the lower default rate may be representative of the borrowers quality.

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