Lending Club Waiving Service Fees on Large Loans

[Update Feb 6, 2012: this promotion is now over. Lending Club will, of course, honor loans still on the platform that have a “No Fee” status but you will not see any new “No Fee” loans for the time being. No word on when or if it will be back.]

I logged on to Lending Club this morning and noticed this. Lending Club is waiving fees for investors in large loans. It is a limited time offer but the waiving of fees is for the life of the loan.

So if you invest in a loan of $20,000 of more Lending Club will waive their investor service fees until the loan is paid off. This should increase investor’s expected annualized return by between 0.42% and 0.75%. It will also remove the Lending Club prepayment penalty to investors that some have discussed on this blog.

The chart above shows the Net Annualized Return increases with the size of the loan. This is completely true – I confirmed this with Lendstats. But I think the main reason for this is that Lending Club adjusts their interest rates up for the higher dollar loans. So most, but certainly not all, high dollar loans carry higher interest rates. 

No Service Fees is a Good Deal for P2P Investors

Still I think this is a good deal for investors. Most of the loans I invest in are for $20,000 or more so I will be certainly taking advantage of this new offer. Lending Club have made it easy for you – there is now a “No Fee” graphic next to all loans of at least $20,000.

When I visited Lending Club a couple of months ago they talked about possibly making a move like this. They must feel that these loans are less popular with investors than they should be. It will be interesting to see how long this promotion lasts and if it will make much of a difference.

What do you think? Will you be adjusting your investment strategy because of this move? Please provide your comments below.

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Bryan
Dec. 29, 2011 11:20 am

This certainly encourages me to invest in larger loans! As a rule, I’m generally wary of loans greater than $10,000 because it seems like the more that there is to pay back, the larger the opportunity for the person lended to to default. However, a higher percentage of return will sure make me look at these loans a little more seriously.

Marc
Dec. 29, 2011 11:45 am

Wahoo! The only problem is, people in my state can’t take advantage of it, only by happenstance (assuming the no fees transfers). I assume that this is for funding new loans. I hope it transfers with the note and I hope FolioFN has some way of viewing it.

Charlie H
Charlie H
Dec. 29, 2011 9:17 pm

So how does LC make money on this loans if they are waving there service fee?

I assume they are still charging the borrower a loan origination fee.

Dan B
Dan B
Dec. 30, 2011 2:06 am

Marc/Peter………..I would suspect that the “no fee” aspect would be non-transferable in case of a sale through the trading platform. The incentive is for the initial purchasers who essentially determine whether a loan funds or not. The subsequent purchaser on a secondary market does not in any way participate in that determination & therefore deserves no such incentive. Let us remember that the secondary market buyer doesn’t even pay a transaction cost for that purchase………..the seller does.

The secondary note buyer provides “liquidity”, that’s all. It is a very important role, but it doesn’t directly create any new loans, any new business. It is because of this “non creation of new business” factor that cash bonuses such as IRA transfer bonuses, large deposit bonuses & recurring deposit bonuses all require that you commit such funds to “new” loans in order to collect the bonus. This is no different.

Dan B
Dan B
Dec. 30, 2011 2:22 am

Marc………Besides Marc, I can’t imagine how “fees” affected you in any way. After all it’s my understanding that you own only 2 types of notes…………ones that are current & bought & subsequently sold within mere hours……………& ones that have become late, therefore not likely to ever pay you a dime period. In either case, if they don’t pay you, then you don’t pay a fee either. 🙂

Dan B
Dan B
Dec. 30, 2011 9:32 pm

Well it’s certainly no bread off my table, but that decision makes little sense to me. I don’t know about anyone else but this whole no fee thing is going to make absolutely no difference in my selection of notes.

Mike
Mike
Dec. 31, 2011 3:50 pm

It seems counterintuitive to me that smaller loans default more frequently than larger ones. Maybe I am being simplistic, but isn’t it easier for someone to pay $100/month vs $500/month, all other things being equal? I tend to favor the smaller loan amounts on the platform. I figure if someone is out to game the system, they would want to score several thousand dollars before ruining their credit rating.

Mike
Mike
Dec. 31, 2011 6:13 pm

Thanks, Peter. Not sure I buy Lending Club’s explanation; I’ll be following the ROI trends to see how it plays out. I guess this is as good a time as any to thank you for all the time you put into this; wishing you a prosperous 2012.

Larry V
Larry V
Jan. 6, 2012 4:03 pm

Has anyone else noticed that the NO FEE label appears next to a number of loans that are well below $20k. I’m not talking current funding amount. Check out loan # 1085866 , shows loan amount as $6400 and NO FEE.

Larry V
Larry V
Jan. 6, 2012 5:08 pm

Per my LC Rep, if it’s flagged as NO FEE, they will honor it. I’ll be taking screen shots, lol.

Charlie H
Charlie H
Jan. 12, 2012 8:59 am

My assumption is that those NO FEE loans for less then 20K started out as larger loans that only got partially funded. The unfunded portion was then relisted as a NO FEE loan.

This is only my assumption.

gharkness
Feb. 3, 2012 12:02 pm

I came here to ask that very question, about NO FEE loans below 20,000. Looks like Lending Club really should provide some sort of explanation.

Seems like to me that a lot of the NO FEE loans below 20,000 are for small business (but perhaps not all of them). I was wondering if perhaps they were trying to encourage people to invest in small business loans, because many of us shy away from that category.