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