How rising interest rates would affect marketplace lenders has been a question that many people have been asking for a long time. Demand for loans, credit performance and supply of capital to the platforms are all things that may be affected as interest rates increase. Today, we found out how the leader in marketplace lending is going to react. Lending Club announced in this press release today an average interest rate increase of 0.25% for all new loans going forward.
Last week, the Fed raised rates 0.25% for the first time in nearly a decade. Now this was a very minor move, but it is important symbolically as it gives us a window into how marketplace lenders will respond to interest rate increases. Renaud Laplanche, CEO of Lending Club, has regularly gone on the record to state that Lending Club is not interest rate sensitive at all.
This suggested that Lending Club’s marketplace continues to operate in an equilibrium. As short term credit interest rates increase, Lending Club will charge their borrowers more, thus passing on higher yields to the investor. And that is precisely what they are showing by this move today. [Read more…]