Alternative Finances

LendingClub Moves Into Auto Loan Refinancing

Whatever else can — and doubtlessly will — be said about Lending Club in 2016, no one will argue that they didn’t keep things interesting for observers.

This week has been no exception, and LendingClub is moving its debt refinancing model — largely applied to consumers looking consolidate credit card debt — to auto loans.

As of yesterday (October 25), LendingClub has started financing car loans at interest rates that could save the average borrower $1,350 over the term of their debt.

“People think a lot about refinancing their mortgage, but they don’t think much about refinancing their vehicle,” LendingClub Chief Executive Officer Scott Sanborn said in a phone interview.

The pitch LendingClub is offering is fairly straightforward: The loan the customer has is lousy with interest — LendingClub can fix that for them.

Auto loans are a big new playing field LendingClub is boldly striding on to — currently there is over $1 trillion in auto debt outstanding in the U.S., but only about $40 billion of it is refinanced annually.

But just because a market is big doesn’t mean it is necessarily accessible, and auto lending has some distinct troubles. The first is that the borrower pool is looking less strong — sub-prime borrowers are falling behind on car payments at the highest rate in six years. And the market is competitive — lenders have lowered prices and loosened their standards in an attempt to attract buyers in a competitive market.

In the year that ended in June, only 5.2 percent of car-loan applications were rejected, according to research from the Federal Reserve Bank of New York. That’s down from 11.1 percent in the 12 months ended in October 2015.

“We’re well aware of those trends,” Sanborn said. “If you look at the overall market, credit has broadly continued to be quite stable.”

LendingClub will initially offer the loans to California consumers with FICO scores above 640 before expanding nationally to the full spectrum of borrowers. Potential borrowers will have to have made at least three on-time payments on their loans. Vehicles must be less than 7 years old and have fewer than 80,000 miles on the odometer.  Annual interest rates in California will be 2.49 percent to 19.99 percent.

 

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