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Interest Rates and How We Set Them

Lending Club's interest rates take into account credit risk and market conditions. The final interest rate for each loan grade is the result of the following equation: Lending Club Base Rate + Adjustment for Risk & Volatility The Adjustment for Risk & Volatility is designed to cover expected defaults and provide higher riskadjusted returns for each loan grade increment from A1 to G5. The loan grade is the result of a formula that takes into account not only the borrower's credit score, but also a combination of several indicators of credit risk from the borrower's credit report. All loans have either a 36- or 60-month term, with fixed interest rates and equal payments.

Table 1. Loan Grades


Loan GradeSub-GradeLending Club Base RateAdjustment for Risk & VolatilityInterest Rate 1 5.05% 0.37% 5.42% 2 5.05% 0.94% 5.99% 3 5.05% 1.94% 6.99% A 4 5.05% 2.44% 7.49% 5 5.05% 3.44% 8.49% 1 5.05% 4.94% 9.99% 2 5.05% 5.54% 10.59% 3 5.05% 5.94% 10.99% B 4 5.05% 6.44% 11.49% 5 5.05% 6.94% 11.99% 1 5.05% 7.94% 12.99% 2 5.05% 8.44% 13.49% 3 5.05% 8.94% 13.99% C 4 5.05% 9.74% 14.79% 5 5.05% 10.18% 15.23% 1 5.05% 10.57% 15.62% 2 5.05% 10.94% 15.99% 3 5.05% 11.44% 16.49% D 4 5.05% 11.84% 16.89% 5 5.05% 12.44% 17.49% 1 5.05% 12.94% 17.99% 2 5.05% 13.34% 18.39% 3 5.05% 13.74% 18.79% E 4 5.05% 14.24% 19.29% 5 5.05% 14.64% 19.69% 1 5.05% 15.20% 20.25% 2 5.05% 15.57% 20.62% 3 5.05% 15.94% 20.99% F 4 5.05% 16.31% 21.36% 5 5.05% 16.69% 21.74%

1 2 3 4 5

5.05% 5.05% 5.05% 5.05% 5.05%

17.06% 17.43% 17.80% 18.17% 18.54%

22.11% 22.48% 22.85% 23.22% 23.59%

Loan Grades and Risk Modifiers


Using the credit score as the basis of historical credit performance, we first assign each loan into a base sub-grade. We then modify the sub-grade using the following credit risk indicators: Requested loan amount Number of recent credit inquiries Credit history length Total and currently open credit accounts Revolving credit utilization Loan maturity: 36 or 60 months

By adding the modifiers to the base sub-grade, we arrive at the final sub-grade.

Table 2. Initial Loan Sub-Grade Assignment


FICO ScoreLoan Grade 770+ A1 747-769 A2 734-746 A3 723-733 A4 714-722 A5 707-713 B1 700-706 B2 693-699 B3 686-692 B4 679-685 B5 675-678 C1 671-674 C2 668-670 C3 664-667 C4 660-663 C5

Table 3. Guidance Limits by Loan Grade


Loan GradeGuidance Limit A1 $25,000 A2 $20,000 A3 - A5 $15,000 B $12,500 C $10,000

Table 4. Loan Amount vs. Guidance Limit Risk Modifier


Loan Amount/Guidance Limit RatioRisk Modifier 0-24% 0 25-49% -1 50-74% -2 75-99% -3 100-124% -4 125-149% -5 150-174% -6 175%-199% -8 200% or more -10

Table 5. Recent Inquiries Risk Modifier


# Inquiries in the Last 6 MonthsRisk Modifier 0 A +1, B +2, C +3 1-3 0 4 -1 5 -2 6 -4 7 -6 8 -10 9 or more Decline
Borrowers with 4 or more credit inquiries in the last 6 months and a credit score below 740 will be declined.

Table 6. Credit History Length Risk Modifier


Credit History Length (months)Risk Modifier 60 or more 0 55-60 -1 49-54 -2 43-48 -3 37-42 -4 <36 Decline

Table 7. Total and Open Accounts Risk Modifier


Open AccountsSub-Grade Modifier 0-1 Decline 2-3 -4 4 -2 5 -1 6-21 0 22 -2 23 -3 24 -4 25 -8 26 or more -12

Table 8. Revolving Credit Utilization Risk Modifier


Utilization Risk Modifier <5% -1 5-84.99% 0 85-89.99% -1 90-94.99% -2 95-97.99% -4 98-99.99% -8 100% or moreDecline

Table 9. Loan Term Modifier


Loan Term (Maturity)Loan GradeRisk Modifier 36 months A-G 0 60 months A - B -5 60 months C - G -6
As an example, let's assume a borrower member requests a 60-month $10,000 car financing loan, showing the following credit data points: FICO score of 700 10 open accounts 3 credit inquiries in the last six months 50% utilization of credit limit, and First credit line opened 7 and a half years ago.

We start by assigning this borrower a B2 sub-grade (10.59% interest rate) based on the borrower's FICO score of 700. Next, we make no sub-grade modification for open accounts, because 10 open accounts is greater than 5 and less than 22 and because borrower has had only three credit inquiries in the last six months. We make no sub-grade modification for 50% utilization of credit limit, since it is greater than 5% but lower than 85%, and we make no sub-grade modification for length of credit history, because the borrower member shows more than 60 months of credit experience. Now, let's look at the requested loan amount: since $10,000 is between 75-99% of the guidance limit of $12,500 for B loan grades, the borrower's credit grade is reduced by an additional three sub-grades to B5. Finally, we lower the sub-grade five more levels to a C5 based on the loan term of 60 months that results in an APR of 17.59% for the borrower and an interest rate of 15.23% for the investor.

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