Wednesday, February 17, 2010

How long does it take for a Lending Club loan payment to get credited to my account?

Someone writes wondering how long it takes for borrower payments on Lending Club loans to be credited to the investor's Lending Club account. Short answer: four business days, and then allow another business day for the account display to update reflecting the credit.

So, for example, one of my loans had a payment due date of 2/9/2010. I see that payment today (17th) and its completion was dated yesterday (16th.) Note that Monday was a holiday. So the four business days from the due date of the 9th were the 10th, 11th, 12th, skip the weekend and Monday, and the 16th. I did not see that payment earlier yesterday (the 16th), but I probably would have seen it later in the evening on the 16th. In fact, I now see that payment in my account.

I had two other payments due on 2/10/2010. Adding four business days (and skipping the weekend and Monday holiday) puts the completion date on the 17th, which is today, with the four business days being the 11th, 12th, 16th, and 17th. Right now, the Lending Club screen still says "Processing", but sometime this evening or overnight processing will complete and tomorrow morning (18th) I will see that credt in my account and the screen will say "Completed" with today's date (17th.) There may have been a couple of times where an extra day was needed, but I have gotten into the (good) habit of not watching this stuff on a daily basis, so other than checking today to answer this question, I normally would not notice or care.

Lending Club automatically debits loan payments from the borrowers bank account using what is called an ACH debit. ACH stands for Automated Clearinghouse and is an electronic funds transfer system that permits companies to debit and credit customer bank accounts. Although electronic transactions theoretically happen virtually instantly, the ACH system is a batch system where each payment in the batch has a settlement date. ACH debits occur at 11:00 a.m. Eastern Time, and credits occur at 8:30 a.m. Eastern Time. Direct deposit of paychecks is an example of an ACH credit. Some banks may in fact process credits and debits much earlier than the 8:30 a.m. and 11:00 a.m. deadlines.

One part I am a little fuzzy on is that there is some sort of grace period during which the debited bank (known as a receiving depository financial institution or RDFI, the borrower's bank) may decide to cancel the transaction and take the debit money back from the debiting bank (the bank issuing the debit order, known as the originating depository financial institution or ODFI, Lending Club's bank.) I vaguely recall three days as the grace period, but I could be mistaken or it could have changed. Fraudulent ACH debits are a prime reason for a holding period. In short, Lending Club gets the money quickly, but they need to wait a short period to assure that the money will not be yanked back.

Although it may be tempting to assume that ACH transfers happen instantaneously or at least overnight, the biggest benefit to Lending Club investors is the certainty that payments can be debited on a reliable basis.

Note: Loan payments are credited to your Lending Club account, not you bank account. This money is then available for re-investment in new loans, or you can separately initiated a transfer to your own bank account (an ACH credit to your bank account.)

-- Jack Krupansky


At 9:05 AM EST , Anonymous Roy said...

Thanks Jack!

I'm adding this blog to my daily digest!!

So far I really like Lending Club. It's only been a few months, and I was VERY conservative in my loan choices, only choosing approved loans with high credit scores, and I'm somewhere around 12.5% return.

I'm confident I could have been much higher, but I wasn't sure the risk vs reward, and 12.5% is plenty good enough for me! Especially if it's reliable.

Thanks so much for the quick response, and keep on blogging about Lending Club!!


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