Investors in the popular peer-to-peer lending website, Lending Club, saw an increase in the average rate of return earned by investors from 9.61% in August to 9.65% during the month of September.
On the front page of Lending Club’s website, the company advertises average net annualized rate of return that its investors have received since the company started connecting lenders and borrowers since June of 2007. The statistic published includes all of the fees that the company collects as well as late payments, loans in default, and charged-off loans.
During the month of September, the averaged net annualized return that its investors receive narrowly increased from 9.61% APY to 9.65% APY. One of the primary motivating factors for this increase is that Lending Club recently raised the interest rates that it is charging borrowers by about 50 basis points to remain competitive with what traditional banks were charging for personal loans. Previously, borrowers with the best credit could get loans for 7.05%. Since the increase, borrowers with the best credit can now get unsecured loans at 7.89%.
Lending Club investors are increasingly using strategies to fund only loans for specific purposes, such as weddings and vacations that have typically had much lower default rates than loans for debt consolidation and loans to start a new business. Since Lending Club investors are now doing a better job of biasing their loan picks towards the best performing loans, many loans that would have a higher likelihood of default never get fully funded and are never originated.
Although the modest increase of 0.04% during the month of September might not seem significant, it’s important to remember that statistic measures the performance of all 6,309 loans that have been originated on the site during the last 27 months.
