It didn’t take long for LendingClub.com to raise the rates on all new loans in response to the Fed rate change last week. LendingClub said Tuesday it would raise interest rates for new loans by an average of 0.25% to match the Federal Reserve’s December move.
Not as quick as many credit cards, but quick enough to make loan investors happy. The higher rates are not anticipated to slow down the growth of LendingClub and no decrease in loans is expected per MoreMerchant.
Online lending clubs like LendingClub and Prosper rely on being able to offer lower rates to those seeking loans than traditional banks by letting individuals invest in loans and make better returns than savings accounts, CDS, and others.
“This adjustment was widely expected” says, Karen Hanks of MoreMerchant.com, “the real question is why is Prosper so slow to follow suit.”
Below is the table from an email received from Lending Club which outlines the rate increases across loan grades. The most significant rate increase comes from E-grade loans. This is interesting as the rates on E-grade loans had dropped too far or do they see a weakening in the market with more high rick borrowers defaulting at a higher page?
Here are the details of the recent interest rate changes:
|Loan Grade||Previous Interest Rate||Updated Interest Rate*|
*Average Borrower interest rate as of 12/22/2015.
CEO and founder Renaud Laplanche says:
“The value we deliver to our customers is not dependent on the absolute level of interest rates. Our marketplace’s rates will continue to adjust in such a way that borrowers benefit from the same savings against credit card rates, and investors continue to find very attractive risk-adjusted returns compared to other fixed income alternatives,” said Laplanche. “Our ability to compress the spread between these two rates, using technology and low-cost operations, remains unchanged irrespective of the rate environment.”
Investors are pleased with this rate adjustment, while borrowers will hardly notice at this point. The big question is, when will Prosper adjust their rated?