Author Topic: Prosper increasing interest rates on AA, A and B loans  (Read 5711 times)

Peter

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Prosper increasing interest rates on AA, A and B loans
« on: April 18, 2012, 06:21:32 PM »
Prosper announced this week that they will be increasing rate for borrowers on AA, A and B rated loans. I spoke with Joe Toms, Chief Investment Officer, and he said that they are getting oversized demand from these kinds of borrowers. B-rate borrowers now have an expected return north of 10%. Will this change your investment strategy at all?
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DiligentiaLLC

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Re: Prosper increasing interest rates on AA, A and B loans
« Reply #1 on: April 25, 2012, 06:02:00 PM »
What was especially surprising to me about the announcement was how it reflected a possible shift in lending choices. Folks with A & B credit scores would traditionally be able to borrow from a bank and/or liquid accounts that offer them competitive interest rates (such as credit cards or lines-of-credit).  To see people with higher credit profiles choose p2p lending when in fact this demographic has more options is pretty exciting. 

Peter

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Re: Prosper increasing interest rates on AA, A and B loans
« Reply #2 on: April 27, 2012, 07:18:43 PM »
Chris, It is interesting that someone would choose p2p lending who has a decent credit score, particularly when that rate might be 12-14%. I don't think they are doing it out of any loyalty to Prosper or Lending Club, I think the borrowing process is quick and easy but the bottom line is most likely that this is the best rate they can find.
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DiligentiaLLC

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Re: Prosper increasing interest rates on AA, A and B loans
« Reply #3 on: April 27, 2012, 07:39:17 PM »
I don't think they are doing it out of any loyalty to Prosper or Lending Club

I would partially agree with your statement.  The part I agree with is that brand loyalty probably plays little or no part in the lending decision. But I must be fair and admit I can think of many friends and relatives that only do business with one particular bank because "they have been banking with them for years" - not because they shopped around and made the decision on interest rate competitiveness.  So the more I think about it, who knows, maybe brand loyalty to Prosper/LC could play a part with some tech savvy folks?

I think the borrowing process is quick and easy but the bottom line is most likely that this is the best rate they can find.

This part I respectfully disagree with.   ;)  I think convenience is a motivator for some folks, especially those with higher credit grades who have other loan options and are more likely to have opportunities to not go full term with the money they need at the moment.  A great example of this is with the percentage of people that pay off loans early on both p2p platforms.  For the higher credit grade folks that have that done the math on the time value of their loan, a few mouse clicks and X,000 in two weeks is much more convenient than having to argue with a banker on why you are a good "risk" for them to take and then have to provide the mountain of paperwork and applications to prove as such. This is all the more true when the borrower knows privately (or publicly) they are only going to need the money for less than a year anyway so the interest accrual effect between Prosper at 12% and local bank at 10% (if even possible nowadays) over a period of less than 12 months could be considered by some as nothing more than a convenience cost.

Peter

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Re: Prosper increasing interest rates on AA, A and B loans
« Reply #4 on: April 30, 2012, 07:43:51 PM »
Chris, I think brand loyalty could have an impact, most definitely, on second or third loans on Prosper and Lending club. Once you have been through the process once as you say it just easier to go back and repeat the process.

I think if you compare p2p lending to a bank loan then I completely agree that convenience is a big factor. But if you compare it to a credit card application or some other online lender such as Lending Tree or eloan then I think the convenience factor is about the same.

The numbers keep growing, though, so borrowers keep finding it appealing - we can't argue with that.
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