Sunday, July 3, 2011

Need Series: An Introduction

I look at the titles of many Prosper loans, and they sadden me:
Need money to pay off the high interest credit card bills !!
Fresh Start Needed!
need to build credit
HELP! Need money til I refi

I see borrowers needing money and I want to avoid those loans like the plague. It bothers me. I don't like the idea of needing things from others--and I don't like the idea of others needing things from me. It just seems to me that if a borrower really needs the money then they're not trying hard enough or thinking widely enough about the problem. And I associate that attitude with a failure to pay back loans.

So I set out to explore the question: "Do loans with the word 'need' in the title pay back less than loans without the word 'need' in the title."

My initial results are interesting. As you can see from the first batch of 2008 loans I tested, there was a 5.7% difference in the number of loans that were paid out as agreed:
DescriptionNumber of LoansPaid
2008 Loans, with "need" in the title86148.6%
2008 Loans, without "need" in the title1070454.3%

Five percent isn't huge, but it's big enough to keep my interest for a while. In future posts I'll break open the statistics book to start to explore these findings. I'll explore whether the numbers are even statistically significant and I'll see if there is a better explanation for my findings, such as credit rating and current delinquencies. Maybe I'm on to something new. Maybe I'm just tilting at windmills.

All Articles in the Needs Series
An Introduction
Initial Findings
Correlation Matrix
Comparing to Lending Club
What We Fund

1 comment:

  1. If those figures are right, a simple Chi-squared test shows that "need" in the title is a statistically significant predictor at a p < 0.01 level.