One of the great improvements that we’ve seen over the past year involves the time it takes for both Prosper and LendingClub to fund their loans. As a borrower, this is obviously important, assuming that you are in need of the money. As an investor, it is ideal to have your loans fund quickly so you can start earning interest and making a return on your investment, rather than having cash sit in your account.
Both Prosper and LendingClub have been making improvements to their loan application, verification and on-boarding processes in order to shorten this timeframe. These changes certainly show up in the numbers. We see that over the course of this year, Prosper has brought its time to fund from almost 7 days down to 4. LendingClub has gone from about 11 days to 5. This is a great achievement that brings value to both the borrower and the investor.
The next question is whether these improvements are consistent across credit grades. As most investors know, some credit grades are more desirable given their higher interest rates and therefore are funded more quickly. However, the higher risk (therefore, higher interest rate) loans might require more thorough verification which could add to the time. We wanted to check to see if the improvements seen above are consistent across different credit grades.
Prosper’s time to fund was fairly inconsistent across credit grades until about June 2013 (with the exception of AA loans which still are higher than the rest). By August, the other credit grades tightened, and the improvements continued to show through November 2013.
LendingClub’s timing has been remarkably consistent between credit grades, the difference being almost nonexistent. The overall trend has been mostly downward, especially since July 2013.
Another factor we wanted to test was loan size. Given that larger loans could potentially take longer to fund, we wanted to see if there was any differentiation. We looked at $10,000 bands.
For Prosper, there was a clear differentiation at the beginning of the year with an almost 5 day difference between the highest loan amount and the lowest. The gap has tightened impressively over the year, and by September, the gap was only 1.5 days. It is now less than a day.
For LendingClub, the difference by loan amount was never very pronounced – usually around 2 days. However, it has been reduced down to less than a day’s difference in November.
It is clear that both Prosper and LendingClub are focusing on streamlining their loan on-boarding processes – and it’s paying off for borrowers and investors alike. By decreasing the time to fund, all parties involved benefit. We look forward to a time in the not-too-distant future when these averages are sub-one day!