Author Topic: Champagne Problems  (Read 5949 times)

AmCap

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Champagne Problems
« on: May 22, 2013, 07:52:23 AM »
Like any securitization, LC's structure makes yields more attractive relative to risk in a lending situation because it provides diversification and liquidity.  This structure then encourages more people to lend, as we've seen over the last 6 months.  At what point does the borrower side of the benefit come in via lower cost of borrowing.  Part of the rationale for securitization in other contexts is that, as lending into the structure becomes more attractive and more lenders enter to market, interest rates should drop because of the increased supply of money.

When will LC get there?  At some point, to meet the demand on the investor side, aren't they simply going to have to lower yields to entice more borrowers to borrow?

Show Me The $

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Re: Champagne Problems
« Reply #1 on: May 22, 2013, 08:09:04 AM »
Funny you mention this. I was wondering the same thing. If they wanted to actually truly HELP the borrower they would lower rates up until investor appetite and Borrower needs have an equilibrium. This would suck for us, but most of us would stay put....since we have lack of choice for yield today.

rawraw

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Re: Champagne Problems
« Reply #2 on: May 22, 2013, 05:50:12 PM »
Like any securitization, LC's structure makes yields more attractive relative to risk in a lending situation because it provides diversification and liquidity.  This structure then encourages more people to lend, as we've seen over the last 6 months.  At what point does the borrower side of the benefit come in via lower cost of borrowing.  Part of the rationale for securitization in other contexts is that, as lending into the structure becomes more attractive and more lenders enter to market, interest rates should drop because of the increased supply of money.

When will LC get there?  At some point, to meet the demand on the investor side, aren't they simply going to have to lower yields to entice more borrowers to borrow?
I don't know what you are comparing it to, but their interest rates are already below the bank loans on large unsecured amounts that I see day to day through my work.  Banks generally want some sort of collateral.

Zach

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Re: Champagne Problems
« Reply #3 on: May 22, 2013, 09:53:30 PM »
Like any securitization, LC's structure makes yields more attractive relative to risk in a lending situation because it provides diversification and liquidity.  This structure then encourages more people to lend, as we've seen over the last 6 months.  At what point does the borrower side of the benefit come in via lower cost of borrowing.  Part of the rationale for securitization in other contexts is that, as lending into the structure becomes more attractive and more lenders enter to market, interest rates should drop because of the increased supply of money.

When will LC get there?  At some point, to meet the demand on the investor side, aren't they simply going to have to lower yields to entice more borrowers to borrow?
I don't know what you are comparing it to, but their interest rates are already below the bank loans on large unsecured amounts that I see day to day through my work.  Banks generally want some sort of collateral.

Other than unsecured loans, LC loans aren't generally very competitive unless you have A1 credit.

LonghornSF

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Re: Champagne Problems
« Reply #4 on: May 23, 2013, 12:03:34 AM »
Other than unsecured loans, LC loans aren't generally very competitive unless you have A1 credit.

This is one of the reasons that I look upon people borrowing on LC for secured purposes (i.e. auto loan) with tremendous skepticism. Anybody with halfway decent credit could get an auto loan or mortgage for much lower rates than they do on LC. There is a negative selection bias for such loans on LC which is clearly borne out in the default data.

It would be interesting to see LC branch out into auto or other secured lending. It wouldn't be up my alley, but institutional investors would love to invest in secured paper yielding in the single digits. Obviously, the verification process would become much more complex though.
« Last Edit: May 23, 2013, 12:05:09 AM by LonghornSF »

rawraw

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Re: Champagne Problems
« Reply #5 on: May 23, 2013, 04:03:21 AM »
Like any securitization, LC's structure makes yields more attractive relative to risk in a lending situation because it provides diversification and liquidity.  This structure then encourages more people to lend, as we've seen over the last 6 months.  At what point does the borrower side of the benefit come in via lower cost of borrowing.  Part of the rationale for securitization in other contexts is that, as lending into the structure becomes more attractive and more lenders enter to market, interest rates should drop because of the increased supply of money.

When will LC get there?  At some point, to meet the demand on the investor side, aren't they simply going to have to lower yields to entice more borrowers to borrow?
I don't know what you are comparing it to, but their interest rates are already below the bank loans on large unsecured amounts that I see day to day through my work.  Banks generally want some sort of collateral.

Other than unsecured loans, LC loans aren't generally very competitive unless you have A1 credit.
You can't compare rates on unsecured loans to secured loans.  LC exists primarily because the credit card unsecured loans were charging good borrowers too much (at least that's the story Renauld tells).  That's why I'm sure most of the loans are debt consolidation.  It's just people trying to turn the revolving credit into installment credit easily without having to pledge their house, car, or third born.

rawraw

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Re: Champagne Problems
« Reply #6 on: May 23, 2013, 04:05:12 AM »
Other than unsecured loans, LC loans aren't generally very competitive unless you have A1 credit.

This is one of the reasons that I look upon people borrowing on LC for secured purposes (i.e. auto loan) with tremendous skepticism. Anybody with halfway decent credit could get an auto loan or mortgage for much lower rates than they do on LC. There is a negative selection bias for such loans on LC which is clearly borne out in the default data.

It would be interesting to see LC branch out into auto or other secured lending. It wouldn't be up my alley, but institutional investors would love to invest in secured paper yielding in the single digits. Obviously, the verification process would become much more complex though.
It'll be interesting.  I'm not sure if the cost advantage will translate well once you get complex loans -- unless it's structured like a shared national credits.

Fred

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Re: Champagne Problems
« Reply #7 on: May 23, 2013, 05:52:40 AM »
This is one of the reasons that I look upon people borrowing on LC for secured purposes (i.e. auto loan) with tremendous skepticism.

On the other hand, the speed and convenience (to obtain LC loans) is also compelling to these borrowers, for a price.

Zach

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Re: Champagne Problems
« Reply #8 on: May 23, 2013, 08:42:01 AM »
Like any securitization, LC's structure makes yields more attractive relative to risk in a lending situation because it provides diversification and liquidity.  This structure then encourages more people to lend, as we've seen over the last 6 months.  At what point does the borrower side of the benefit come in via lower cost of borrowing.  Part of the rationale for securitization in other contexts is that, as lending into the structure becomes more attractive and more lenders enter to market, interest rates should drop because of the increased supply of money.

When will LC get there?  At some point, to meet the demand on the investor side, aren't they simply going to have to lower yields to entice more borrowers to borrow?
I don't know what you are comparing it to, but their interest rates are already below the bank loans on large unsecured amounts that I see day to day through my work.  Banks generally want some sort of collateral.

Other than unsecured loans, LC loans aren't generally very competitive unless you have A1 credit.
You can't compare rates on unsecured loans to secured loans.  LC exists primarily because the credit card unsecured loans were charging good borrowers too much (at least that's the story Renauld tells).  That's why I'm sure most of the loans are debt consolidation.  It's just people trying to turn the revolving credit into installment credit easily without having to pledge their house, car, or third born.

I'm not trying to make a comparison, rather just stating that other than people will A1 credit (the only offering currently), rates are not necessarily better than other credit options currently available. Perhaps I misstated that... The unsecured part wasn't really necessary.

Sometimes its hard for me to understand why someone takes out a loan with an APR of 24%+...especially to consolidate debt :)

cjayb

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Re: Champagne Problems
« Reply #9 on: May 23, 2013, 08:45:37 AM »
Other than unsecured loans, LC loans aren't generally very competitive unless you have A1 credit.

This is one of the reasons that I look upon people borrowing on LC for secured purposes (i.e. auto loan) with tremendous skepticism. Anybody with halfway decent credit could get an auto loan or mortgage for much lower rates than they do on LC. There is a negative selection bias for such loans on LC which is clearly borne out in the default data.

It would be interesting to see LC branch out into auto or other secured lending. It wouldn't be up my alley, but institutional investors would love to invest in secured paper yielding in the single digits. Obviously, the verification process would become much more complex though.

It's possible that they may not be able to get auto loans on certain cars. e.g. if they want to buy a 10 year old car from a private party for 6k, most banks won't make an auto loan for something that old. Unsecured loans would be the only way to finance it.