Author Topic: Increased Rates for 60 Month Loans  (Read 5063 times)

Randawl

  • Sr. Member
  • ****
  • Posts: 469
    • View Profile
Increased Rates for 60 Month Loans
« on: October 26, 2013, 01:19:31 PM »
In the past I have seen borrowers pay a premium of about 3-5% for choosing a 60 month vs a 36 month term.  Lately, I have seen that rate increased for many loans.  Here is an example of a couple today - one with a 7.53% additional rate:



I have not seen any that high until recently.
Perhaps this is LC's response to them noticing that the premium charged was not compensating the risk well enough for the increased charge-off rates seen with 60 month notes.  For those that still invest exclusively in 36's, does this make 60's more attractive to you?  Or do you still plan to take a "wait and see" approach and give it a few more years for the first vintages to fully mature?

As an aside, I would like to see LC report separate charge-off rate graphs and tables for 36's and 60's in their 10-K's/10-Q's instead of combined by grade.

Lovinglifestyle

  • Hero Member
  • *****
  • Posts: 893
    • View Profile
    • Email
Re: Increased Rates for 60 Month Loans
« Reply #1 on: October 26, 2013, 09:36:12 PM »
Sorry, but I don't understand the example.  These two both appear to be 60 month loans.

I no longer select according to term.  The advisors here on the forum convinced me last year that returns are more important.  If not for Foliofn I might reconsider now and then, but without 60s the choices would be a whole lot fewer!

GS

  • Sr. Member
  • ****
  • Posts: 413
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #2 on: October 26, 2013, 11:27:09 PM »
I wonder if this means that defaults on 60 months loans are starting to come in higher than expected, so they are upping the risk premium.  60 month loans have been a bit of an unknown, since there is not yet a good sample of completed loans

Randawl

  • Sr. Member
  • ****
  • Posts: 469
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #3 on: October 27, 2013, 11:46:11 AM »
Sorry, but I don't understand the example.  These two both appear to be 60 month loans.

I no longer select according to term.  The advisors here on the forum convinced me last year that returns are more important.  If not for Foliofn I might reconsider now and then, but without 60s the choices would be a whole lot fewer!

Yes, they are both examples of 60 month loans with higher than previous premiums for being a longer term.


I wonder if this means that defaults on 60 months loans are starting to come in higher than expected, so they are upping the risk premium. 60 month loans have been a bit of an unknown, since there is not yet a good sample of completed loans

This is what I suspect as well.

GS

  • Sr. Member
  • ****
  • Posts: 413
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #4 on: October 27, 2013, 08:36:20 PM »
Here's something interesting that you didn't used to see before.  (see attachment) Three D4s/60 months all getting different premiums.  The first two are for similar amounts, but the one with the lower FICO is getting a higher rate adjustment.  Also, the one for $35K has the same FICO as one above, but is paying a higher premium (perhaps because it is a $35K loan). 

Also, you can see other 60 month loans paying lower premiums (only 1-2% more), which is also new.

It looks like LC went to a more advanced risk model for 60 month loans.

[attachment deleted by admin]

DutchNurse

  • Jr. Member
  • **
  • Posts: 55
    • View Profile
    • Email
Re: Increased Rates for 60 Month Loans
« Reply #5 on: October 31, 2013, 04:08:43 PM »
I always took it to mean 60mo default rate was higher? Maybe I missed something?

rawraw

  • Hero Member
  • *****
  • Posts: 2746
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #6 on: October 31, 2013, 08:21:55 PM »
I always took it to mean 60mo default rate was higher? Maybe I missed something?
Or too many people are excluding them from their investments.  Could also be an attempt to re-balance demand.

jimsar

  • Jr. Member
  • **
  • Posts: 50
  • Stuff Happens
    • View Profile
    • Email
Re: Increased Rates for 60 Month Loans
« Reply #7 on: November 01, 2013, 02:24:19 PM »
I'm new here, and from the information I've gathered, decided to exclude 60-month loans.  However, as more loans ourside of consolidation are issued, e.g. car loans, I wonder if 60's will be as inferior as they seem.  I do know of many great borrowers (self included) who have done 60 month car loans.

Randawl

  • Sr. Member
  • ****
  • Posts: 469
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #8 on: November 02, 2013, 11:29:58 AM »
Just saw one with a 8.88% increased premium.

Lloigor

  • Newbie
  • *
  • Posts: 43
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #9 on: November 05, 2013, 04:36:07 PM »
The higher premiums could also reflect that LC believes interest rates are finally set to rise after many years of record lows.  LC could be making sure the investors will be compensated highly enough near end of the 5 year term to not want to sell their notes and find something more lucrative.

rawraw

  • Hero Member
  • *****
  • Posts: 2746
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #10 on: November 05, 2013, 06:21:57 PM »
The higher premiums could also reflect that LC believes interest rates are finally set to rise after many years of record lows.  LC could be making sure the investors will be compensated highly enough near end of the 5 year term to not want to sell their notes and find something more lucrative.
If your logic holds true, the investor would have to take a loss to sell and reinvest.  So it wouldn't be to prevent investors from moving cash.

Fred

  • Hero Member
  • *****
  • Posts: 1421
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #11 on: November 06, 2013, 01:50:00 AM »
Just saw one with a 8.88% increased premium.

I am back, after weeks of hibernation from this Forum.   :)

Thanks for bringing up this issue, Randawl.  Looks like 8% premium is worth taking a second-look at the 60-mo loans.
« Last Edit: November 06, 2013, 02:29:10 AM by Fred »

rawraw

  • Hero Member
  • *****
  • Posts: 2746
    • View Profile
Re: Increased Rates for 60 Month Loans
« Reply #12 on: November 06, 2013, 09:36:31 AM »
Just saw one with a 8.88% increased premium.

I am back, after weeks of hibernation from this Forum.   :)

Thanks for bringing up this issue, Randawl.  Looks like 8% premium is worth taking a second-look at the 60-mo loans.
You had us scared man.  It really was just Core and DanB posting lately lol