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Lending Club Waiving Service Fees on Large Loans

by Peter Renton on December 29, 2011

I logged on to Lending Club this morning and noticed this. Lending Club is waiving fees for investors in large loans. It is a limited time offer but the waiving of fees is for the life of the loan.

So if you invest in a loan of $20,000 of more Lending Club will waive their investor service fees until the loan is paid off. This should increase investor’s expected annualized return by between 0.42% and 0.75%. It will also remove the Lending Club prepayment penalty to investors that some have discussed on this blog.

The chart above shows the Net Annualized Return increases with the size of the loan. This is completely true – I confirmed this with Lendstats. But I think the main reason for this is that Lending Club adjusts their interest rates up for the higher dollar loans. So most, but certainly not all, high dollar loans carry higher interest rates. 

No Service Fees is a Good Deal for P2P Investors

Still I think this is a good deal for investors. Most of the loans I invest in are for $20,000 or more so I will be certainly taking advantage of this new offer. Lending Club have made it easy for you – there is now a “No Fee” graphic next to all loans of at least $20,000.

When I visited Lending Club a couple of months ago they talked about possibly making a move like this. They must feel that these loans are less popular with investors than they should be. It will be interesting to see how long this promotion lasts and if it will make much of a difference.

What do you think? Will you be adjusting your investment strategy because of this move? Please provide your comments below.

{ 15 comments… read them below or add one }

Bryan December 29, 2011 at 11:20 am

This certainly encourages me to invest in larger loans! As a rule, I’m generally wary of loans greater than $10,000 because it seems like the more that there is to pay back, the larger the opportunity for the person lended to to default. However, a higher percentage of return will sure make me look at these loans a little more seriously.

Marc December 29, 2011 at 11:45 am

Wahoo! The only problem is, people in my state can’t take advantage of it, only by happenstance (assuming the no fees transfers). I assume that this is for funding new loans. I hope it transfers with the note and I hope FolioFN has some way of viewing it.

Charlie H December 29, 2011 at 9:17 pm

So how does LC make money on this loans if they are waving there service fee?

I assume they are still charging the borrower a loan origination fee.

Peter Renton December 29, 2011 at 9:54 pm

@Bryan, One would expect that to be the case but if you look at the numbers from loans issued in the last three years the defaults are greatest for the smaller loans. I am not sure why but my theory for this is that the people taking a larger loan are generally more serious about budgetting for it because it is a major commitment.

@Marc, That is a good question. I would expect that the “no fee” loans will carry over to the trading platform. But I wouldn’t hold your breath on being able to locate these loans easily on Folio.

@Charlie, Lending Club make the vast majority of their money on loan originations – my estimate is that 75% or so of their revenue is from the borrower side. They will take a hit from the investor side but they will probably make up for it by having more larger loans issue. So, it may end up being a net positive.

Dan B December 30, 2011 at 2:06 am

Marc/Peter………..I would suspect that the “no fee” aspect would be non-transferable in case of a sale through the trading platform. The incentive is for the initial purchasers who essentially determine whether a loan funds or not. The subsequent purchaser on a secondary market does not in any way participate in that determination & therefore deserves no such incentive. Let us remember that the secondary market buyer doesn’t even pay a transaction cost for that purchase………..the seller does.

The secondary note buyer provides “liquidity”, that’s all. It is a very important role, but it doesn’t directly create any new loans, any new business. It is because of this “non creation of new business” factor that cash bonuses such as IRA transfer bonuses, large deposit bonuses & recurring deposit bonuses all require that you commit such funds to “new” loans in order to collect the bonus. This is no different.

Dan B December 30, 2011 at 2:22 am

Marc………Besides Marc, I can’t imagine how “fees” affected you in any way. After all it’s my understanding that you own only 2 types of notes…………ones that are current & bought & subsequently sold within mere hours……………& ones that have become late, therefore not likely to ever pay you a dime period. In either case, if they don’t pay you, then you don’t pay a fee either. :)

Peter Renton December 30, 2011 at 3:10 pm

@Dan/@Marc, I just heard back from Lending Club on this and the “No fee” offer WILL translate over to the secondary market – they are even planning on some way to make this information visible to investors there. That may or may not happen so if I were you Marc, I would pay attention to the loan date. All large loans issued in early January will likely have no fees. I will report back (if?) when this special deal goes away.

Lending Club also wanted to clarify one more point. These larger loans are not less popular as I stated above they fund at a similar rate to the smaller loans, but for these loans to fully fund they need to be funded at a faster rate than smaller loans.

Dan B December 30, 2011 at 9:32 pm

Well it’s certainly no bread off my table, but that decision makes little sense to me. I don’t know about anyone else but this whole no fee thing is going to make absolutely no difference in my selection of notes.

Mike December 31, 2011 at 3:50 pm

It seems counterintuitive to me that smaller loans default more frequently than larger ones. Maybe I am being simplistic, but isn’t it easier for someone to pay $100/month vs $500/month, all other things being equal? I tend to favor the smaller loan amounts on the platform. I figure if someone is out to game the system, they would want to score several thousand dollars before ruining their credit rating.

Peter Renton December 31, 2011 at 4:18 pm

@Mike, I would have thought the same thing. But the historical numbers suggest otherwise. Lending Club explained it to me this way. The bulk of the loans are for debt consolidation. So, say someone is taking out a $25,000 loan to pay off credit card debt then they must be eligible for $50,000 in total credit. So, assuming they use most of the new loan to pay off their credit card debt then they have a large amount of wiggle room if they need new money for whatever reason.

Of course, this argument makes a lot of assumptions and I will be interested to see if the trend continues for a higher ROI on larger loans.

Mike December 31, 2011 at 6:13 pm

Thanks, Peter. Not sure I buy Lending Club’s explanation; I’ll be following the ROI trends to see how it plays out. I guess this is as good a time as any to thank you for all the time you put into this; wishing you a prosperous 2012.

Peter Renton December 31, 2011 at 9:46 pm

@Mike, You’re welcome. It is a labor of love for me and I expect the more I know the better my investments will do. Happy New Year to you as well.

Larry V January 6, 2012 at 4:03 pm

Has anyone else noticed that the NO FEE label appears next to a number of loans that are well below $20k. I’m not talking current funding amount. Check out loan # 1085866 , shows loan amount as $6400 and NO FEE.

Larry V January 6, 2012 at 5:08 pm

Per my LC Rep, if it’s flagged as NO FEE, they will honor it. I’ll be taking screen shots, lol.

Peter Renton January 8, 2012 at 10:06 pm

@Larry, Good catch and thanks for sharing. I have noticed that on a few loans and wondered what was going on. Good to know that Lending Club will honor the No Fee flag regardless of the amount.

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