Elevated interest rates and stubborn inflation are squeezing consumers, leading to record-high credit card and household debt. According to the Federal Reserve Bank of New York, U.S. credit card balances soared to $1.23 trillion in the third quarter and have been a major contributor to rising household debt, which also reached a record high of $18.59 trillion.
As debt levels continue to rise, demand for personal loans from professional investors is incredibly strong. One company in a prime position to benefit from this is LendingClub (LC 3.22%). The company has built its lending model over the past decade plus and is experiencing robust demand from borrowers and investors. If interest rates dip from here, the momentum could carry even further. Here's why LendingClub could be a buy ahead of 2026.
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LendingClub is experiencing strong demand from investors
A few years ago, LendingClub and other consumer lending companies struggled with rising interest rates, as demand from both borrowers and investors came to a screeching halt. Today, interest rates have moderated, and investors want to capitalize on the opportunity.
Demand for consumer loans is strong, as evidenced by LendingClub's origination volumes. In Q3, the lender originated over $2.6 billion in loans, a 37% year-over-year increase.
As part of its business model, LendingClub sold roughly three-quarters of its loans through the marketplace, which includes whole-loan sales to institutional buyers and securitized offerings. It held the remaining $594 million in loans and generated a record $158 million in net interest income from its loan portfolio.
Its new lending products appeal to a diverse set of investors
As noted above, LendingClub sells roughly three-quarters of its loans to investors, including hedge funds, asset managers, and insurance companies.
One way it sells its loans is through its Structured Loan Certificates program. This program is structured as a two-tranche private securitization that pools unsecured personal loans originated by LendingClub. The company retains the senior note on this pool (the safer portion) and sells the riskier, higher-yielding tranche to market investors.
This structure enables LendingClub to hold the highest-quality loans on its books, generating net interest income. Meanwhile, the company earns marketplace revenue from the sale of its remaining loans. This allows it to manage its balance sheet, reducing capital intensity by retaining only 20% to 25% of the total loans originated.
Alternative credit or private credit companies, such as Blue Owl Capital, like these structured loan certificates because they can buy them in volume and achieve attractive risk-adjusted returns. Blue Owl is a major partner for LendingClub, having renewed a forward flow agreement to purchase up to $3.4 billion in loans.
NYSE: LC
Key Data Points
In addition, LendingClub is expanding its structured loan program to include rated offerings on its senior investment-grade rated tranches. These are the loans the company typically holds, but it will sell them to institutional investors with more stringent capital requirements, such as banks and insurance companies.
Also known as the LendingClub Rated Notes (LENDR) program, this builds on its structured certificates program by offering multiple tranches, each rated by Fitch Ratings. This appeals to institutional investors because it has earned a nationally recognized credit rating for regulatory capital purposes, helping them manage risk while also offering higher yields than traditional investment-grade bonds.
Demand is strong. LendingClub secured a memorandum of understanding from BlackRock investment advisors to purchase up to $1 billion of its loans through 2026. The company also saw one top insurance company invest $100 million in its rated notes, and is optimistic that it can appeal to the industry, which collectively holds $8.5 trillion in assets.
LendingClub is a bargain
LendingClub attributes the strong demand for its loans to its track record. LendingClub has underwritten personal loans for more than 15 years across various economic environments. The company goes beyond FICO® and debt-to-income ratios and leverages machine learning and other data points to fine-tune its risk and reward.
Over the past several years, LendingClub has maintained a very restrictive credit underwriting standard, targeting consumers with established credit and higher-than-average incomes ($100,000-plus in income and FICO® Score typically over 700). The company could also benefit from falling interest rates, which could spur a wave of refinancings, as people may be incentivized to roll their debt into a lower-interest loan.
LendingClub is seeing strong demand for its loans from both investors and borrowers. With the stock trading at 12.3 times next year's earnings, it appears to be a good value buy today.
