Posted by Patrick Gannon :: July 18, 2007 @ 12:29 pmWe often talk about how person-to-person lending, and Lending Club in particular, helps borrowers obtain a 3% to 4% lower interest rate than they would get from a bank or a credit card company. These lower rates result from a more efficient process: bypassing the banks and making the money flow seamlessly between individuals (lenders and borrowers).
The average Lending Club loan rate is 10.3%, while the average rate for credit cards with a balance is 14.47% (according to the July 9th Federal Reserve G.19 weekly survey of commercial banks and finance companies).
What's that 3% worth? A lot:
• Our average issued loan to date is almost $5,000 ($4,991). Call it $5,000 for argument's sake.
• The average interest rate we are charging is coming out to 11.00%
• Over three years, a $5,000 loan @11% = interest of $892.97 over 3 years.
• Over three years, a $5,000 loan @14.64% = interest of $1,208.07 over 3 years.
• That is a savings of $315, or 26% reduction in interest.
When we talk about 3%, what we mean is actually more than a 25% reduction in interest. If loans were just regular items, we’d say you can “buy” it at a 25% discount. In the example above, the 25% discount means $315 in your pocket.
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