So far all my Prosper.com and Lending Club loans are current. I would be annoyed with loan defaults, but currently the number of borrowers who pay the loan in a month or less is starting to bother me. Why does a borrower bother to take out a loan for one month?
Here are a few instances from Lending Club of early paybacks that wasted my time and tied up my money while trying to find and fund loans:
Loan # 172924
Grate/ Rate: E : 14.82%
My Monthly Expected payment: $0.85
Amount Paid Back: $25.84
ONE PAYMENT RECEIVED before being fully paid back. This person wasted the origination fee and a check against their credit score and then paid off the loan in one month.
Loan # 188937
Grate/ Rate: A : 8.32%
My Monthly Expected payment: $0.78
Amount Paid Back: $25.33
ONE HALF INTEREST PAYMENT RECEIVED before the loan was fully paid back.
Prosper.com has the same prepayment issue. One of my loans has already been fully paid. It was fully paid in less than one month. Of course this loan was a very small so it was at greater risk of early payment.
From the Lending Club FAQ:
What if one of my borrowers prepays a loan?
Borrowers can prepay their loans at any time with no penalty. If a borrower prepays a loan, your money will be transferred to your Lending Club account where you can reallocate it to new loans or withdraw it to your bank account.
From the Prosper.com Borrowing FAQ:
What happens if a borrower repays their loan early?
Borrowers can make extra loan payments or repay the loan entirely at any time without penalty.
- Lending money for only one month wastes lenders’ time and causes money to be idle longer negatively impacting return.
- Borrowing money to only pay it back in one month wastes a borrower’s time and potentially costs money because of the origination fee. Additionally borrower’s credit score could move lower due to an unnecessary hard credit check.
Borrowers, please do not borrow a P2P loan from Prosper.com or Lending Club only to pay it back in one month. It is a waste of your time and possibly money and it certainly wastes lenders’ time and money.
Lending Club and Prosper.com need to consider changing the terms of service to add an early payback penalty if a loan is paid back in less than six months.
I am not referring to people paying off a loan after six months or a year. These borrowers mentioned all paid off their loans in one month or less! There are legitimate reasons to pay off a loan after several months or to pay it down as quickly as possible — I understand that. Paying it off in 15 days means that they really did not need the loan in the first place.