Posted by Patrick Gannon :: October 13, 2007 @ 2:22 pm

The average return on all loan portfolios created by Lending Club lenders since the opening of our public Beta on Facebook on May 24 has been steadily moving up. As you can see from our home page, the average portfolio yield is currently 12.10%. What is the reason for the steady increase?

We believe that this trend reflects good news for everyone in the Lending Club community. Our interest rates are driven by credit grade. Credit grade is driven by multiple factors including credit score and loan amount. Interest rates vary with the size of the requested loan, which is done to reflect the difference in risk between a small payment and a larger one (assuming an equal pre-loan Debt-to-Income ratio)

Lending Club's average loan size has steadily increased - from under $5,000 in June to about $6,000 now, which has moved many loans into slightly higher interest rate ranges based on the loan amount modifiers. This is good for borrowers because they are getting larger loan amounts approved (and fulfilled). Over 90% of our loan listings are funded and issued. For lenders, the yield on new portfolios is moving higher.

Long term, where is this going to go? It remains to be seen where the average return will end up. Our interest rates will move over time with the market and we are making adjustments to the rate modifiers as we get more data in. We expect that post-fee, post-default yields on portfolios will remain above 11%, making an investment in person-to-person loans on Lending Club a very compelling alternative to putting money into bonds and stocks.