Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: PhilGD on July 15, 2016, 08:34:03 PM

Title: Why does LC limit loan term to 36 or 60 months?
Post by: PhilGD on July 15, 2016, 08:34:03 PM
I received another direct mail solicitation from Discover Personal Loans today and I noticed that Discover offers loan terms of 36, 48, 60, 72, and 84 months. So I was wondering if there's a reason why marketplace lenders like LC and Prosper only offer terms of 36 or 60 months? In other words, if the underwriting tech at LC is as good as they claim then why not compete across all loan terms?
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: jheizer on July 15, 2016, 09:26:33 PM
Simplicity sake maybe?  Less options = less confusing.
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: bobeubanks on July 15, 2016, 09:38:18 PM
I suspect that Discover only makes those offers to established customers with a good payment history.
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: rawraw on July 16, 2016, 04:43:18 AM
It used to be only 36 months.
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: Fred on July 16, 2016, 11:24:01 AM
In other words, if the underwriting tech at LC is as good as they claim then why not compete across all loan terms?

The underwriting tech at LC is not as good as they claim.
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: Fred93 on July 16, 2016, 02:21:15 PM
...I noticed that Discover offers loan terms of 36, 48, 60, 72, and 84 months. So I was wondering if there's a reason why marketplace lenders like LC and Prosper only offer terms of 36 or 60 months?

Your question seems to begin with an unstated presumption that offering more variety would benefit LC somehow.  That isn't clear. 

Every company offering a product decides in how many variations to offer their product.  They all make different choices.
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: GS on July 16, 2016, 03:53:13 PM
I needed a loan recently, and looked into both LC, Discover and BofA. As a borrower, Discover was better than LC, hands down.  Discover had no origination fee, and a better interest rate.  And I'm not nor have I ever been a discover hard holder.  I think LC was 17% for me and Discover was 11%.
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: rawraw on July 16, 2016, 06:26:40 PM
I needed a loan recently, and looked into both LC, Discover and BofA. As a borrower, Discover was better than LC, hands down.  Discover had no origination fee, and a better interest rate.  And I'm not nor have I ever been a discover hard holder.  I think LC was 17% for me and Discover was 11%.
IIRC, last time I checked I qualified for the A1 rate at LC and it was below Discover's bottom rate.

And just to clear something up -- there is pricing and structure.  They are different things in extending credit.  You want lenders to compete on pricing, but less willing for them to compete on structure.  It doesn't matter how good you are, making it take longer increases the risk all else equal.  And it is incredibly difficult to know ahead of time if the rate justifies the risk.  I wouldn't be a fan of them offering even longer terms -- unsecured for 5 years is long enough
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: justice42 on July 17, 2016, 10:06:24 PM
I needed a loan recently, and looked into both LC, Discover and BofA. As a borrower, Discover was better than LC, hands down.  Discover had no origination fee, and a better interest rate.  And I'm not nor have I ever been a discover hard holder.  I think LC was 17% for me and Discover was 11%.

But that happens all the time. Different institutions look at different metrics. I've been banking with wells fargo for 5 years (credit score over 700 the whole time). I asked them about an personal loan, they came back at 14%. I asked a small regional bank who didn't know me, they came in at 9%.

Just because WF came in higher on this loan doesn't really mean anything, they're still a huge super profitable national bank.
Title: Re: Why does LC limit loan term to 36 or 60 months?
Post by: Edward Reid on July 26, 2016, 11:37:01 AM
I go for the simplicity argument. Those additional terms don't really offer much more, especially since picking the right term involves predicting one's future finances rather accurately. In the case of 48 months, one can always take a 60-month loan and make extra payments. Those capable of predicting that 48 months is better for them than 36 or 60, are also capable of figuring out how to make additional payments.

Monthly payments for a $10,000 loan at 10%:

1 year, $879
2 year, $461
3 year, $323
4 year, $254
5 year, $212
6 year, $185
7 year, $166

Just looking at those numbers, it seems to me that 3 and 5 cover most of what 4, 6, and 7 cover. The real advantage to borrowers would be in 1-yr and 2-yr loans, for those with current cash flow problems which they will be able to fix soon. But again, people who can predict that, can take a 3-yr loan and make extra payments.

Edward