Loans of up to $35,000 are now available through Lending Club—previously, only loans up to $25,000 were allowed. The higher loan max makes it easier for borrowers funding large projects, like home improvements, via low-interest, fixed rate loans through Lending Club.
According to LC CEO Renaud Laplanche, “The increase in maximum loan size was prompted by customer demand. We believe that continued softness in the home market is making it difficult for even people with great credit to obtain home equity loans. With our $35,000 loans, it’s easy for creditworthy borrowers who want to make home improvements, like adding solar panels or a swimming pool, to fund their projects with a fixed-rate personal loan through Lending Club.”
My own personal (and unscientific) survey of friends and family have found this to be true. It’s almost impossible to get a HELOC these days, or even “unlock” the limit on the one you have already to make it available for use, despite your good credit.
So how should this change your LC investing strategy (if it does)? According to Lending Club, investors may also benefit, as loans of more than $20,000 have historically performed better than smaller loans, with investors receiving 10.3% Net Annualized Return, compared to the platform-wide average of 9.68% NAR. I personally am a little wary to invest in a loan that is over 25K, but with the possibly higher NAR, it may be less risky. Time will tell. I’ve been historically slow to warm up to new types of investing, and to P2P lending in general; I studied it for over five years before I invested, so I tend to be careful.
Matt of Steadfast Finances, who runs a growing LC investment group and writes frequently on P2P lending via Lending Club, is cautious as well. “It [the 35K limit] seems to benefit potential borrowers more than the investors by opening up a larger customer base. For investors, this raises the ability to find more high quality borrowers who wouldn’t have applied without the raised loan ceiling, but in theory, it also raises the risk of default (e.g. larger the loan payments, more difficult to repay in a cash flow crunch).”
Carla C., an investor from Chicago, is thrilled by the new limit. “I can see that P2P is growing, and I really like that. It’s becoming an alternative to banks, more and more.”
I believe you should pay extra careful attention to certain metrics that detail a borrower’s credit history in the case of larger loans. If you are considering investing in 25K+ loans, consider these questions:
1. Debt-to-Income Ratio
Can the prospective borrower handle a larger loan?
2. Revolving Credit Balance
How much of a debt load is the prospective borrower carrying right now?
3. Credit Score Range
What is the current credit score range? Most importantly, are you comfortable with the number? A large loan that is at the credit limit could affect the score and future borrowing ability for the borrower, good or bad. Although I don’t believe that the credit score is the “end-all, be all”–it can definitely be wrong–it is a leading indicator.
As always, take time to consider each borrower carefully. Invest wisely. But you really can’t beat those returns.