Lending Club

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Interest Rates and How We Set Them

Lending Club's interest rates take into account credit risk and market conditions. The final interest rate for each loan grade is the result of the following equation:

Lending Club Base Rate + Adjustment for Risk & Volatility

The Adjustment for Risk & Volatility is designed to cover expected defaults and provide higher risk-adjusted returns for each loan grade increment from A1 to G5.

The loan grade is the result of a formula that takes into account not only the borrower's credit score, but also a combination of several indicators of credit risk from the borrower's credit report. All loans have either a 36- or 60-month term, with fixed interest rates and equal payments.


Table 1. Loan Grades

Loan Grade Sub-Grade Lending Club Base Rate Adjustment for Risk & Volatility Interest Rate
A 1 5.05% 0.98% 6.03%
2 5.05% 1.57% 6.62%
3 5.05% 2.57% 7.62%
4 5.05% 2.85% 7.90%
5 5.05% 3.85% 8.90%
B 1 5.05% 4.71% 9.76%
2 5.05% 5.69% 10.74%
3 5.05% 7.07% 12.12%
4 5.05% 8.06% 13.11%
5 5.05% 8.62% 13.67%
C 1 5.05% 8.94% 13.99%
2 5.05% 9.60% 14.65%
3 5.05% 10.26% 15.31%
4 5.05% 10.76% 15.81%
5 5.05% 11.24% 16.29%
D 1 5.05% 12.22% 17.27%
2 5.05% 12.94% 17.99%
3 5.05% 13.20% 18.25%
4 5.05% 13.50% 18.55%
5 5.05% 14.17% 19.22%
E 1 5.05% 14.94% 19.99%
2 5.05% 15.45% 20.50%
3 5.05% 15.94% 20.99%
4 5.05% 16.43% 21.48%
5 5.05% 16.92% 21.97%
F 1 5.05% 17.40% 22.45%
2 5.05% 17.73% 22.78%
3 5.05% 18.08% 23.13%
4 5.05% 18.21% 23.26%
5 5.05% 18.28% 23.33%
G 1 5.05% 19.15% 24.20%
2 5.05% 19.28% 24.33%
3 5.05% 19.47% 24.52%
4 5.05% 19.71% 24.76%
5 5.05% 19.84% 24.89%

Loan Grades and Risk Modifiers

Using the credit score as the basis of historical credit performance, we first assign each loan into a base sub-grade. We then modify the sub-grade using the following credit risk indicators:

  • Requested loan amount
  • Number of recent credit inquiries
  • Credit history length
  • Total and currently open credit accounts
  • Revolving credit utilization
  • Loan maturity: 36 or 60 months

By adding the modifiers to the base sub-grade, we arrive at the final sub-grade.


Table 2. Initial Loan Sub-Grade Assignment

FICO® Score Loan Grade
770+ A1
747-769 A2
734-746 A3
723-733 A4
714-722 A5
707-713 B1
700-706 B2
693-699 B3
686-692 B4
679-685 B5
675-678 C1
671-674 C2
668-670 C3
664-667 C4
660-663 C5

Table 3. Guidance Limits by Loan Grade

Loan Grade Guidance Limit
A1 $35,000
A2 $30,000
A3 $25,000
A4 $20,000
A5 - B5 $15,000
 C  $12,500

Table 4. Loan Amount vs. Guidance Limit Risk Modifier

Loan Amount/Guidance Limit Ratio Risk Modifier
0-24% 0
25-49% 0
50-74% -2
75-99% -2
100-124% -4
125-149% -4
150-174% -6
175%-199% -8
200% or more -10

Table 5. Recent Inquiries Risk Modifier

# Inquiries in the Last 6 Months Risk Modifier
0  A +1,  B +2,  C +3
1-3 0
4 -1
5 -2
6 -4
7 -6
8 -10
9 or more Decline

Borrowers with 4 or more credit inquiries in the last 6 months and a credit score below 740 will be declined.


Table 6. Credit History Length Risk Modifier

Credit History Length (months) Risk Modifier
60 or more 0
55-60 -1
49-54 -2
43-48 -3
37-42 -4
<36 Decline

Table 7. Total and Open Accounts Risk Modifier

Open Accounts Sub-Grade Modifier
0-1 Decline
2-3 -4
4 -2
5 -1
6-21 0
22 -2
23 -3
24 -4
25 -8
26 or more -12

Table 8. Revolving Credit Utilization Risk Modifier

Utilization Risk Modifier
<5% -1
5-84.99% 0
85-89.99% -1
90-94.99% -2
95-97.99% -4
98-99.99% -8
100% or more Decline

Table 9. Loan Term Modifier

Loan Term (Maturity) Loan Grade Risk Modifier
36 months  A - G  0
60 months  A - B  -5
60 months  C - G  -6

As an example, let's assume a borrower member requests a 60-month $20,000 car financing loan, showing the following credit data points:

  • FICO score of 700
  • 10 open accounts
  • 3 credit inquiries in the last six months
  • 50% utilization of credit limit, and
  • First credit line opened 7 and a half years ago.

We start by assigning this borrower a B2 sub-grade (10.74% interest rate) based on the borrower's FICO score of 700. Next, we make no sub-grade modification for open accounts, because 10 open accounts is greater than 6 and less than 21 and because borrower has had only three credit inquiries in the last six months. We make no sub-grade modification for 50% utilization of credit limit, since it is greater than 5% but lower than 85%, and we make no sub-grade modification for length of credit history, because the borrower member shows more than 60 months of credit experience.

Now, let's look at the requested loan amount: since $20,000 is between 125-149% of the guidance limit of $15,000 for B loan grades, the borrower's credit grade is reduced by an additional four sub-grades to C1. Finally, we lower the sub-grade five more levels to a D1 based on the loan term of 60 months that results in an APR of 19.68% for the borrower and an interest rate of 17.27% for the investor.

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Featured Borrower

Brandon
  • Brandon
  • Arlington, VA
  • Home Purchase
  • $18,000 at 8.89% APR

"My interest rate was low enough that it's very comfortable paying my loan back within three years."

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