Interest Rate Changes – Sub-grade Analysis

Lending Club changed their interest rates again effective 5/13/2015. Here’s how┬áit compares against the last change from February 2015:

Compared to the February 2015 interest rate changes, the May 2015 changes seem to focus on the extreme ends of the risk spectrum (A1-A4 and E2-G5). Here are some highlights:

  • There were no changes to interest rates for A5-E1, as most of the adjustments last time (February 2015) were focused in that range.
  • The A1 sub grade was adjusted down -0.61%, or 1/10th of the raw interest rate. There may be a goal to move the A1 sub-grade loans closer to the U.S. Prime rate + 1% after LendingClub’s investor fee (3.25% + 1.00% + 0.67% = 4.92%). A1 rates currently stands at 5.32%.
  • For the high yield seekers who favored E and F grade loans, the rates were cut across the board by up to 1%
  • However, at the extreme end of the grade scale, F5-G5 loans saw an increase in interest rates. Previously, F5 vs. G5 loans only had a 0.49% interest rate spread. Now, we see a 3.21% spread.

Finally, how does this impact the typical investor return on an annual basis? Nothing significant…a loss of 0.01%/year.