Lending Club Loan Types: Which Perform Best

Lending Club revamped the statistics section of its website last year and investors are getting a better idea of how different loan types perform. Previously, investors had some hints about what typed of loans performed better from the company’s webcasts, but now Lending Club publishes the average rate of return for loans based on the purpose that they were taken out for.

Lending Club asks borrowers to report what the purpose of their loan is for. Almost half of all Lending Club’s loans are debt consolidation loans. The current categories that Lending Club lists includes automobile financing, loans to purchase environmentally friendly appliances or vehicles, general debt consolidation, credit card debt consolidation, home improvement, wedding expenses, vacations, major purchases, small business, moving expenses, education investment and other.

Out of all of the different types of loans that Lending Club lists, loans for vacations and weddings seem to perform particularly well, averaging 9.96% and 9.87% rates of return respectively, after all late payments and fees are considered. Financing for renewable energy products also performed particularly well at 10.28%.

Borrowers that are refinancing their debt also seem to provide a much better rate of return than some of the other loan purposes. Borrowers listing a “general debt consolidation” return an average of 9.74% and borrowers hoping to consolidate their credit cards return an average of 10.42% rate of return after all expenses, late payments and defaults are considered.

Here’s a graph showing how different loans perform:

Loan types that performed poorly include loans for home purchases and moving expenses, which returned rates of 6.96% and 4.85% respectively. It’s logical that borrowers looking to get a loan for a down payment of a home or for a home had higher default rates since it means they probably weren’t able to get traditional financing or had over-leveraged themselves in buying a home.

The very low rate of return on moving expenses could be a result of the fact there are very few loans made in that category and that individuals needing to borrow money to make a move happen probably don’t have very much in savings.

By reviewing loan types and only selecting loans that meet specific criteria based on the purpose of the loan and the credit ratings, investors should be able to make much wiser decisions about the loans they invest in and hopefully bring in a much better rate of return.