Lendbuzz, the Boston-based online lending company that extends car loans, raised $150 million in debt and equity financing. The equity round was led by 83Northwith, with significant participation from existing investors. BHI, ConnectOne Bank, IDB Bank and Viola Credit led the debt round.
Founded in 2015, Lendbuzz uses machine learning to develop proprietary algorithms to determine the creditworthiness of borrowers with a limited credit history, especially targeting expats and international students. It does this by partnering with car dealerships.
"Our AutoML Deep Neural Network (DNN) system is continuously improving and allows us to evaluate the true credit risk for people with a limited credit file or missing FICO score,” Dr. Dan Raviv, co-founder and CTO of Lendbuzz, said in a statement.
In lending specifically, borrower data has become the determining factor for loan approvals. Not that lenders didn’t historically use data to make decisions, but the data available in earlier decades wasn’t as rich or as extensive as today's. A loan approval that would have once simply required a decent FICO score and assessment of character has expanded to include data points like a business’s social media presence, reviews and the owners’ background history.
Auto loans are the third-largest category of household debt for American consumers, right behind mortgages and student loans. According to the Consumer Financial Protection Bureau, there were almost 100 million auto loans outstanding in 2017, totaling more than $1 trillion. The agency signaled concerns about a booming car loan market for borrowers with low credit scores, leading to higher default rates.
Online lending, or marketplace lending, companies have come under the SEC's scanner for fraud and dubious lending practices. In September, the SEC charged San Francisco-based marketplace lender LendingClub with fraud for misreporting returns to investors. More recently, lending company Prosper agreed to pay a $3 million penalty for “miscalculating and materially overstating annualized net returns to retail and other investors.”
