Peer-to-Peer lending: What is Lending Club?
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The document discusses household debt in the United States and introduces Lending Club as a peer-to-peer lending platform. It notes that average US household credit card debt is $15,950 with an average interest rate of 17%, while average total household debt is $107,700 which is 207% of the median household income. It then describes how Lending Club works, including that it assigns loan grades based on borrower credit scores and history, slices loans into pieces that individual lenders can purchase, and charges 1% of interest payments as a fee. On average, Lending Club borrowers have a FICO score of 699 and a debt-to-income ratio of 16.9%.
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Peer-to-Peer lending: What is Lending Club?
- 1. Lending Club Presentation1 LENDING CLUB NYSE: LC Monday, 02 February 2015 INTRODUCTION
- 2. Lending Club Presentation2 Average U.S. total household debt is $107,7001 Median U.S. household income of $51,939 Avg Debt 207% of income LENDINGINAMERICA 1. WSJ Overview Household Debt Average US household credit card debt is 15,950$ Or 14.8% of total debt Average interest rate on CC debt is 17% Credit Card Debt
- 3. Lending Club Presentation3 Average U.S. total household debt is $107,7001 Median U.S. household income of $51,939 Avg Debt 207% of income LENDINGINAMERICA 1. WSJ Overview Household Debt Average US household credit card debt is 15,950$ Or 14.8% of total debt Average interest rate on CC debt is 17% Credit Card Debt 0% 50% 100% 150% 200% 250% U.S. Household Greece Italy Spain Debt/GDP
- 4. Lending Club Presentation4 Average U.S. total household debt is $107,7001 Median U.S. household income of $51,939 Avg Debt 207% of income LENDINGINAMERICA 1. WSJ Overview Household Debt Average US household credit card debt is 15,950$ Or 14.8% of total debt Average interest rate on CC debt is 17% Credit Card Debt 0% 50% 100% 150% 200% 250% U.S. Household Greece Italy Spain Debt/GDP 0.00% 10.00% 20.00% Greek 3yr Bond Yield pre-Syriza U.S. Credit Card Debt Greek 3yr Bond Yield post- Syriza Interest on Debt
- 5. Lending Club Presentation5 233 Months 156 Months 119 Months 97 Months £10,000.00 £11,000.00 £12,000.00 £13,000.00 £14,000.00 £15,000.00 £16,000.00 £17,000.00 £18,000.00 £19,000.00 £20,000.00 1% 2% 3% 4% 5% 6% Totalamountpaid Percent paid each month LENDINGINAMERICA 1. Navy Federal Credit Union Credit Card Debt Paying off £10,000 in credit card debt at 17% APR
- 6. Lending Club Presentation6 17% return on investment is ridiculous More than compensates for defaults. Many people would loan money for much less than 17%, but: Adverse selection and high individual risks for smaller lenders make this difficult LENDINGINAMERICA Competing with big lenders Competition to lenders
- 7. Lending Club Presentation7 17% return on investment is ridiculous More than compensates for defaults. Many people would loan money for much less than 17%, but: Adverse selection and high individual risks for smaller lenders make this difficult LENDINGINAMERICA Competing with big lenders Competition to lenders In the U.S., your FICO score and credit report can be accessed by anyone lending to you FICO is an algorithm that measures credit worthiness Takes into account total debt, payment history, type of credit, income/debt ratio Gives a score between 300 and 850 <650 is subprime (now nonprime) 650 is acceptable 720 is good >780 is excellent FICO & Credit Reports
- 8. Lending Club Presentation8 17% return on investment is ridiculous More than compensates for defaults. Many people would loan money for much less than 17%, but: Adverse selection and high individual risks for smaller lenders make this difficult LENDINGINAMERICA Competing with big lenders Competition to lenders In the U.S., your FICO score and credit report can be accessed by anyone lending to you FICO is an algorithm that measures credit worthiness Takes into account total debt, payment history, type of credit, income/debt ratio Gives a score between 300 and 850 <650 is subprime (now nonprime) 650 is acceptable 720 is good >780 is excellent FICO & Credit Reports Packaged Debt Mortgage backed securities were created to reduce individual risk by pooling large numbers of mortgages together Not to be confused with Collateralized Debt Obligations, which were used to alchemize junk- grade subprime mortgages into investment-grades by creating a tower with varying payment priorities. By buying $10,000 of an MBS, you own a tiny piece of every loan contained within the MBS One individual defaulting will have a minimal impact on the value of an MBS
- 9. Lending Club Presentation9 LendingClub Lending Club 1. Lending Club Peer to peer lending company Seeks to lure borrowers away from larger lenders by providing loans with lower interest rates Does not loan money itself, instead takes 1% a cut on interest paid by borrowers to lenders Purpose
- 10. Lending Club Presentation10 Has access to the same information as credit card companies Takes FICO score (>650 only), credit report (income, existing debt, payment history), the purpose of the loan and “other information” into account and assigns a loan grade. Accepts about 10% of applicants. Slices each loan into smaller pieces that are sold individually. Lenders can select each pieces individually or automatically based on assigned criteria LendingClub Lending Club Method 1. Lending Club Peer to peer lending company Seeks to lure borrowers away from larger lenders by providing loans with lower interest rates Does not loan money itself, instead takes 1% a cut on interest paid by borrowers to lenders Purpose
- 11. Lending Club Presentation11 Has access to the same information as credit card companies Takes FICO score (>650 only), credit report (income, existing debt, payment history), the purpose of the loan and “other information” into account and assigns a loan grade. Accepts about 10% of applicants. Slices each loan into smaller pieces that are sold individually. Lenders can select each pieces individually or automatically based on assigned criteria LendingClub Lending Club Method 1. Lending Club Peer to peer lending company Seeks to lure borrowers away from larger lenders by providing loans with lower interest rates Does not loan money itself, instead takes 1% a cut on interest paid by borrowers to lenders Purpose 699 FICO score 16.9% debt-to-income ratio (excluding mortgage) 15.8 years of credit history $73,157 personal income (top 10% of US population) Average Loan Size: $14,182 Average Borrowers1
- 12. Lending Club Presentation12 LendingClub Notes & Grades 1. Lending Club Effectively subprimeLikely between 650-700Likely 700+
- 13. Lending Club Presentation13 LendingClub Example Portfolio 1. Lending Club A 7.62% B 11.85% C 15% D 17.67% A 7.62% A 7.62% A 7.62% D 17.67% D 17.67% D 17.67% D 17.67% D 17.67% D 17.67% D 17.67% C 15% B 11.85% B 11.85% B 11.85% B 11.85% B 11.85% B 11.85% B 11.85% B 11.85% B 11.85% B 11.85% B 11.85% C 15% C 15% C 15% C 15% C 15% C 15% C 15% C 15% C 15% C 15% C 15% C 15% C 15% Portfolio 4.68% 6.82% 7.86% 7.89% C 15% NR
- 14. Lending Club Presentation14 LendingClub Lending 1. Lending Club Activity1 Last Quarter Average Interest Rate1 36-month: 12.07% 60-month: 16.92% All Loan Terms: 14.09% Investor Performance1