Comments on: The Future of Lending Club – Will they Survive and Thrive, or Crash and Burn?

By: Shanti @ Antishay

Shanti @ Antishay — Thu, 17 Apr 2008 06:32:46 +0000

It is fascinating how fast the world moves today; it seems like just yesterday I was learning what P2P loans were, and just hearing about Prosper. After signing up for an account, I made the decision to sit back and watch to see what would happen. I wanted an account just in case (I guess I was interested enough), but I wanted to hear other peoples’ experiences first, and decide if I really did trust this new form of investing (being a lender).

This new development really has me intrigued. My guess is that new laws will be formed due to Lending Club’s proposal, and probably they will be allowed to proceed with their plan to let lenders buy and sell loans from other lenders. I just find this all very interesting! You’ve written a great summary here, and provided a load of information and food for thought. Thank you for covering this!

By: Ryan

Ryan — Wed, 16 Apr 2008 23:57:30 +0000

Trent, I agree the P2P lending model is not perfect, nor do I believe it is something everyone should participate in. But I do think it is forging new territory for borrowers and investors alike.

However, I don’t see how there is any less incentive for low-credit borrowers not to repay their loan. A P2P loan is essentially the same as taking an unsecured loan from a bank, or a cash advance from a credit card (without as many fees). The incentive to pay the money back should be the same because it has the same legal ramifications of any other legal loan. Some people argue there is a larger incentive to repay the loans because they were made by individuals not faceless corporations, but I think if people aren’t going to repay a loan, that part doesn’t matter so much.

It is also important to keep in mind there are many people high credit ratings who choose to take a loan through a P2P site instead of a bank (for various reasons). For these people, their credit rating is extremely important and they have every incentive to repay their loan. Like every investment, there is an element of risk involved, which is evident in the interest rates that are charged to the borrowers (much like higher credit card interest rates for those with lower credit).

The loans I have made on Prosper and Lending Club have all been to people with high credit ratings. I prefer a lower risk level in exchange for a higher likelihood of receiving my payment.

By: Mark @ TheLocoMono

Mark @ TheLocoMono — Wed, 16 Apr 2008 22:41:09 +0000

In one way, I am glad this happened to Lending Club because it shows us that not all P2P are equal.

Prosper has a different model than LC does which was what I noticed was missing from LC. It will be interesting to see how things shake out for LC.

By: Trent Hamm

Trent Hamm — Wed, 16 Apr 2008 17:27:10 +0000

I think the whole p2p model has some flaws to it that are tough to work around. There seems to be less incentive for the low-credit borrowers to even bother paying things back – basically, they found a way to just go to a website and get free money. Who cares about their credit?

By: Four Pillars

Four Pillars — Wed, 16 Apr 2008 16:58:55 +0000

Thanks for the link.

I hope they are able to bounce back from this as I liked their setup a bit better than Prosper’s.

Given that Prosper is still running and LC is not, it really looks like a rather major foul up occurred.

Hopefully we will find out what really happened at some point.

Mike

By: Mrs. Micah

Mrs. Micah — Wed, 16 Apr 2008 16:49:08 +0000

I think it’s a nice idea that people will be able to buy/sell/trade portfolios. That may make it more popular, since you’re not stuck there for 3 years if you don’t like it.

By: FFB

FFB — Wed, 16 Apr 2008 14:35:22 +0000

It seems that the beating Lending Club will take for this will benefit other companies that have the same model (it will benefit LC as well if it succeeds). It’s nice that you shed some light on this as it seems there’s a very dark outlook for the company right now. It will be very interesting to see of they succeed. I think P2P has gotten a lot of press recently, it was approaching a tipping point if you will, and their success over the next year can really bring some changes to the lending model.

It sounds like a part of all of this is the ability to make loans more liquid. I understand the importance of this and it’s probably very important but I can’t help but think about the liquidity of mortgages and how that helped create the current housing mess (and S&L crisis in the 80′s). It will be interesting how a loan’s liquidity comes into play.

Time will show whether Lending Club’s” taking one for the team” will pay off in the long run. I haven’t invested in P2P yet and this situation gives me reason to wait and see what happens.

Thanks for the info!