Student lender CommonBond (profiled here last year) has created a first in the p2p lending industry: an adjustable rate loan. Adapting the popular adjustable rate mortgage loan from the real estate industry their new 10-year loan product has both a fixed and a variable component.
The CommonBond Hybrid Loan
CommonBond is calling it a “Hybrid Loan” because for the first five years the loan has a fixed interest rate and for the second five years it is variable. I caught up with CEO and Co-Founder David Klein earlier this week to discuss this new product and more.
“The new ‘Hybrid Loan’ was designed to provide borrowers with more options to help them better match their student loan payment goals with their personal financial situation,” said Klein. “It was created based on borrower feedback”.
The lowest interest rate on a 10-year fixed interest rate loan at CommonBond is 4.74%. On the hybrid loan the lowest fixed interest rate is 4.14% but that rate only remains fixed for the first five years. After that time the loan’s rate is pegged to the one-month London interbank offered rate (LIBOR). The interest rate could rise to as high as 10.99% over the last five years of the loan.
So the borrower is certainly taking a risk here given that it is highly likely in five years time that interest rates will be higher than they are now. When I asked Klein about this risk to the borrowers he pointed out that the typical borrower at CommonBond pays off their loan in six to seven years.
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When I profiled Orchard back in February, the company was just a few months old and fresh off a $2.7 million funding round. But that wasn’t your typical seed round—Orchard attracted the likes of Vikram Pandit, the former CEO of Citigroup and Tom Glocer, the former CEO of Reuters as investors in that round.
While that was impressive, today they have announced a $12 million funding round from a group of A-list players in our industry. These are people with deep histories and intimate knowledge of the inner workings of p2p lending. But before I get to that, a quick primer for those of you who don’t know Orchard.
Orchard Platform traces its roots back to the LendIt Conference in 2013 where co-founders Matt Burton and Angela Ceresnie presented on some of the challenges facing p2p investors. This led them to create the first company devoted to providing the infrastructure that connects institutional investors with loan originators. They started with Lending Club and Prosper and now connect multiple platforms to their growing investor client base. They provide institutional investors with real-time trading and reporting, investment strategy, data analysis as well as access to loan supply.
I caught up with Orchard CEO Matt Burton earlier today to discuss this new funding round and the names that participated.
“We went out trying to get one or two big names into this round,” said Burton. “We had more interest than we expected and we ended up with many big names.”
Who are These New Investors in Orchard?
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