Archive

Dear Users,

Our site is momentarily down. We got a few outages today, and are fixing the issue as we speak. Our sincere apologies for any inconvenience this might have caused. We will be back up shortly (15-30 minutes).

Thank you for your patience.

Renaud from Lending Club

Long ago you would have never considered providing anything but the most anonymous of information online. Recently there has been significant technological, cultural, and philosophical progress in online information exchange. Financial transactions online are more secure.

As many of our lives have moved online, it was only natural that banking followed. Today, a good majority of our readers cannot imagine using a financial institution that doesn’t offer online access. Your information is available when you desire it.

Anyone who has used an online bank lately knows you are routinely asked to verify your identity by multiple methods. This added measure of security is a result of guidelines issued by Federal Financial Institutions Examination Council in 2005. The compliance date for these guidelines was at the start of this year.

Methods to be implemented are not specified in the guidelines. There are sites that require you to verify a picture you have chosen previously. Others require you to click on letters of a keyboard on screen to type out a secondary password. Some will even send you a small electronic device with a secondary password that changes every few minutes. Every additional step taken helps to secure your information online.

The basic question people tend to ask about online banking is whether or not it’s safe. The honest reply cannot be constrained to a yes or no. A question with related ambiguity helps to put things into perspective: Is it safe to fly?

Advancements in computer security and improved education of users have helped secure online transactions. Increased volume of online transactions taking place daily makes another definitive statement. However if someone tells you that there is absolute security online, they are misinformed.

We have reached a level where banking online is more utilized than traditional banking. Recent statistics show that you’re 94 times more likely to be killed traveling by car than by airplane. That statistic makes traveling by car to a traditional bank an awfully scary thought.

The road to financial freedom is a long and winding one. At times, the journey may even seem unachievable. Focusing on an intermediate goal is a useful way to start.

Remember the old saying that a journey of a thousand miles starts with a single step? For those seeking to take that critical first step and for those who are looking to accelerate their journey, reducing your debt is a worthy intermediate goal.

One of the easiest and most cost effective ways to reduce your debt is to decrease the amount that you’re paying towards interest each month. To do that, you’d like to pay off all of your credit cards, student loans, car loans, etc. as soon as possible. A good start would be by paying as much as possible toward the debt that you have the highest interest rate on.

An alternative is to consolidate all of your high interest debt into one lower, fixed rate loan. When you borrow money at a low rate to pay off debt at higher rates, you may be able to save a considerable amount of money. What’s more, you’ll also be able to pay off your debt faster since more of your money will be going towards the principal balance each month.

A simple example will help to illustrate my point:

As was reported on a recent post, “The average American household with at least one credit card has nearly $9,200 in credit card debt… and the average interest rate runs in the mid- to high teens at any given time.”

Let’s look at that example, and assume that you have a credit card balance of $9200 with 17% interest. Further assume that your credit card terms require a minimum payment of 4% of your balance, which is fast becoming the norm. With those terms, it will take you 11 years to pay off your balance and cost you nearly $14,000 with $4,753 going to interest.

Consider the alternative: If you qualify for a 3 year loan from Lending Club with a fixed rate of 10% interest, you could borrow $9200 and pay off your credit card. After paying back the loan over three years, you will have only spent $1487 in interest for a savings of $3266!

Not only will you have saved a significant amount of money, but you will also be free from your $9200 of debt 8 years sooner. Best of all, your monthly payment towards your loan would be less than the minimum payments you would be required to make when you started paying off your credit card balance. It’s a win-win-win situation!

Start organizing your monetary state of affairs and find a handle on all of the debt that you’re currently under. Consider a fixed interest rate loan, pay off that debt and kick your journey into high gear. A proper first step could make all the difference.

LendingMatch™: Diversification and Matching

Diversification in finance involves spreading your money around into many types and numbers of investments. When it comes to Lending Club, we offer various loan classes, ranging from A to G for lenders to choose from. At any given time a lender may decide to lend a given amount of money which can be allocated across a number of selected loans from different classes, thus forming a diversified loan portfolio.

The goal of LendingMatch™ is to help the user build a loan portfolio in such a way that their allocations are optimal with respect to the specified lender's risk/reward utility function, and match their "profile" and "risk criteria" for each portfolio while keeping the overall loan portfolio "diversified". This is generally considered a search and matching as well as a loan allocation optimization problem.

We provide two routes for lenders to build their loan portfolio: a) via a recommendation that takes into account your return goals and generates a suggested portfolio and b) build your portfolio a-la-carte with browse and search functionalities. You can also start with a recommendation and then continue a-la-carte.

In both cases the system generates a LendingMatch™ rank for each loan that has both a personalization component (specific to the lender and lender-borrower pair, including affinities and connections through social networks) as well as a loan component that considers other factors such as remaining amount to fund and time to close.

This rank is used to select loans in the recommendation process as well as to display results to the user when they search or browse the loan inventory. At the same time the system has to be able to optimize the processing of loans with respect to the existing inventory to ensure proper money flow between lenders and borrowers.

Some immediate questions that come to mind are:

• How does LendingMatch™ consider the "connections" between the lender and borrower?
• What is the "optimal" portfolio that can be constructed from a given set of loans which have the lowest risk for a given value of the expected return?
• How many loans should the portfolio(s) contain in order to be considered "diversified”?
• Can a lender concentrate their funds on a few loans and still be diversified?
• How is “concentration” measured?

Stay tuned for a deeper dive into these questions!

Joaquin

We are happy to announce a new interview that has just posted on Social Lending Watch with John Donovan our COO.

Lending Club would like to thank Social Lending Watch for taking the time to do this. We really appreciate the opportunity that interviews give our company. If there are any questions, please feel free to leave us a comment or leave us a message in our Facebook forum.