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Every P2P Loan is Getting Funded at Lending Club

by Peter Renton on June 5, 2012

It hasn’t happened since September of last year. That was the last time a loan was listed on Lending Club’s platform that did not get funded.

Now, of course, not every listing becomes a successful loan. Some are removed because they fail some form of verification; others are removed by the borrower. But according to Lendstats the last time we saw a valid loan on Lending Club not get funded by investors was in September, 2011.

Good News for Borrowers

So this is good news for any borrower taking out a Lending Club loan. As long as they do everything Lending Club asks of them and all their information on their application is correct their loan will be funded.

If you are a Lending Club borrower there is no need to sit around worrying about whether your loan will get funded. It will. Even when it looks like it won’t.

I have been watching this closely for some time now. On the Browse Notes screen at Lending Club you can sort all the loans by time left. As of this writing the oldest loan on the platform right now has six days remaining and is 90% funded. Clearly that note will easily fund. But it is not always like this.

Just last week I noticed this loan that had just 1 day and 14 hours left and was only 36% funded. Sure enough it funded at 100% and just issued yesterday. Then there was this loan that I thought may be the first loan not to fully fund. The day I checked it had just 1 day and 12 hours left and it was only 14% funded. With a $30,000 loan amount I thought there was no way it would attract more then $25,000 in funding in the last day and a half. I was wrong. It was fully funded before it expired. However, since then it has been removed by Lending Club so this borrower never actually received their money. The fact remains, though, that investors were willing to fully fund that loan.

Where are these Last Minute Investments Coming From?

Now we can’t be sure but it is highly likely this money is coming from within Lending Club itself. There are rules regarding how much the LC Advisor funds can invest in a loan during its first seven days on the platform. But my understanding is that after this time period there are no restrictions. So, on any given day there is probably a large sum of LC Advisors money to put to work and much of it will go towards loans that have been on the platform a while. There is also all the PRIME accounts that Lending Club controls and that may account for some of the late flurry of investment.

Anil over at the Random Thoughts blog had an interesting analysis yesterday that might give us some pause about this last minute rush. His analysis showed that a loan is much less likely to default if it issues within 10 days of its listing date. In fact those loans issued between 14 and 17 days after listing are more than twice as likely to default as those loans that issue within 10 days of listing. So maybe those investors getting in at the last minute will not do as well.

Many Popular Loans Fully Fund in Just a Couple of Days

It is clear that there are many active investors on Lending Club, some with large accounts I expect, who are putting their money to work as soon as loans appear on the platform. Many of the loans I invest in are popular and fund within a week and sometimes much sooner. By the time I get to them some are 90% funded within a day or two. This is why I now invest twice a week in new Lending Club loans rather than once a week which is the way I used to do it. I don’t want to miss out on the popular loans.

What do you think? Have you noticed these loans getting funded at the last minute? Is this a good or a bad thing? As always I am interested in your comments.

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{ 7 comments… read them below or add one }

Jacob June 5, 2012 at 7:30 am

I get loan reccomendation notifications via email daily and even though I’m watching those like a hawk, they’re fully funeded some of the time when I look at them. I’m going to stick with the daily looking as it only takes a few minutes each day and I have money sitting idle. Once that’s all invested though I doubt I’ll be so quick off the line as I am now.

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Jerry Batoski June 5, 2012 at 7:45 am

This is a big positive for LC and other p2p lenders since it shows that demand for this type of investment far exceeds the supply of borrowers looking for loans. Lending Club could use this statistic to get more borrowers to sign up and grow the market.

On the other hand, the fact that all loans, even those by bad borrowers, are getting funded is a concern because it shows that investors are getting into this without knowing much about how p2p lending works or spending the time to research what the loans they’re investing in. This could lead to bad publicity if LC’s underwriting lets through enough bad loans, hurting the trust or perception of the public for this new type of investment, ie “Lending Club said I was going to get a 15% return, but the guy ended up defaulting and I lost money!”

Also, if demand continues to outpace supply, then interest rates might go down since the loans will still get funded. This could lead to more borrowers signing up for lower rates, growing the supply, which would draw more demand. This may or may not be a good thing depending on where the equilibrium ends up and what the interest rates become.

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Learner June 5, 2012 at 9:30 am

As conservative investor I have learned of the unspoken rule:

The more creditworthy the loan, the longer it will take to fund.

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Anil Gupta June 5, 2012 at 12:20 pm

Data doesn’t support your unspoken rule if Loan Credit Grade is considered as a measure of credit worthiness … more to come

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Bryce M June 5, 2012 at 8:47 pm

Days to fund the loan, by itself, is a statistically significant predictor of loan loss. However, it does not add anything above and beyond the standard other predictors of loss that people already know. It is merely a weak proxy for all of those things. If people see bad characteristics, they are less likely to fund the loan and it therefore takes longer to fund. There is nothing unique here.

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Dan B June 5, 2012 at 10:57 pm

So just to be clear, when you say that every loan has been getting funded, do you mean just “funded” or “fully funded”? Because my understanding is that once a loan gets to the 60% funded number it’ll automatically issue regardless of whether it gets any more money beyond that.

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Peter Renton June 6, 2012 at 12:08 am

@Jacob, If you are trying to put a lot of new money to work looking daily is a good idea. Particularly these days when sometimes there are 200 new loans added to the platform on any given day.

@Jerry, There is certainly plenty of demand from LC investors these days and it seems that there is more demand than supply. I wouldn’t say it is a huge difference, though, particularly for the retail investors. Lending Club believes that EVERY loan on the platform is a good loan and should be fully invested. So I don’t think they are concerned that investors may be choosing bad loans – they would say there are no bad loans on the platform. While that may be true I think we can do some analysis that will lead us to the best loans – but that doesn’t mean the others are bad.

@Bryce, That is a fair point. We are really looking at the effect that all the other factors have on the speed of a loan funding.

@Dan, In this article I am referring to loans that make it on to the platform, so some may only be 60% funded. However, I did a little more research and was surprised to see that since January this year every loan that has been listed and passed verification has been 100% funded.

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