Tuesday, September 6, 2011

Loan Description Length: Lending Club

In a post introducing their new Loan Analyzer, Smart Peer Lending writes that they've added a new Loan Description Length search filter:
Loan Desc Length : One possible feature useful for selecting loans is the length of the description field entered by the borrower. Justification being that borrowers who don't take the time to enter in anything may prove to be a higher risk.
I agree. It makes sense that borrowers who write longer descriptions are ones who care more about their loans and, therefore, are more likely to pay them back. Today I'll look at the data for loan description length on Lending Club and in a few days I'll look at the loan description length on Prosper.

Data Set: Lending Club loans made before the start of 2009

Let's begin by looking at the ROI results using Smart Peer Lending's Loan Analyzer:

(Data is presented in Table Form at the end of the post under the title Lending Club ROI.)

What's interesting is that we see ROI swell in the 101-500 character description range and then drop off significantly after 500 characters--the opposite of what I'd expect. Now I take data from my personal analysis tool and find:

(Data is presented in Table Form at the end of the post under the title Lending Club Percent Paid.)

Wow! The longer the description, the less likely a loan is to be Good (defined as Status = Paid or Current.) This is exactly the opposite of what I was expecting. I suppose that it could be that the longer a loan request is, the more the borrower feels the lender needs to be talked into funding a risky loan request.

On Thursday I'll post an analysis of data from Prosper to see if the same thing holds true with loans made over there. I'll be looking at a broader range of loans and breaking them down into higher-rated and lower-rated loans to see if those categories make a difference.

Update: There seems to be a very strong correlation between credit grade and the count of characters in the description. Details are available in my post Loan Description Length By Credit Grade.

Lending Club ROI
DescriptionTotal LoansSmart Peer Lending ROI
Pre 2009, All29980.72%
Pre 2009, 0-100 Character Description10160.83%
Pre 2009, 101-500 Character Description13531.04%
Pre 2009, 501 Characters And Longer629-0.16%

Lending Club Percent Paid
DescriptionTotal LoansPercent GoodPercent BadFully PaidCurrentCharged OffDefault
Pre 2009, All299677.2%21.8%66.2%11.1%21.1%.2%
Pre 2009, 0-100 Character Description100178.6%20.6%70.2%8.4%20%.1%
Pre 2009, 101-500 Character Description135077.1%21.9%64.6%12.5%21%.2%
Pre 2009, 501 Characters And Longer63075.2%23.7%62.7%12.5%23%.2%

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