Thursday, September 8, 2011

Loan Description Length: Prosper

Inspired by a post by Smart Peer Lending, on Tuesday I looked at how the length of a loan's description compared to whether or not the loan was currently Current or had ended with a Paid status for Lending Club loans.

What I found was the opposite of what I expected: loans with shorter descriptions appeared to be Paid or Current more often than loans with longer descriptions. In this post I'll take a look at loans from Prosper and see if the numbers agree.

Pre-2008 Loans (Raw data below.)

Amazingly we see almost a smooth decline between loan groups and percent of loans Paid. I looked, further, at 2008 and Later loans (many of which are still under way) and saw the following results:

Loans from 2008 and Later (Paid and Current) (Raw data below.)

Loans from 2008 and Later (Defaulted and Charged Off) (Raw data below.)

It's easiest to compare the Default and Charge-Off data, which is, again, smaller for less lengthy descriptions and larger for more lengthy descriptions. However, looking at the Paid and Current chart we see that shorter descriptions have fewer Paid loans and more Current loans. This could mean that newer loans have shorter descriptions and older loans have longer descriptions--at least in loans since 2008.

I wanted to go a little farther with these sets of loans, so I further divided the loans between credit grades. I looked at AA, A and B as a set of loans and C, D and E as a set of loans (once again using completed loans made before 2008) and found the following results:

Pre-2008 Loans By Credit Grade (Raw data below.)

For both groups we see the same thing: the fewer characters in a listing, the more likely it was to finish off having Paid.

Well this is certainly an unexpected result. It's worthwhile to keep in mind that these are all loans that funded. It could be that this is a characteristic of Lenders choosing loans with short descriptions only if all other characteristics look good.

But the more I look at this data, and the results of words like "need" and "help", the more it would seem that writing a description is more of a detriment to a borrower than not writing one.

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.

Pre-2008 Loans
DescriptionTotal LoansPaidCurrentRecoveredNever Recovered
Pre 2008 Loans, 0-500 character description194870%0%70.8%29.1%
Pre 2008 Loans, 501-1000 character description378864%0%65.4%34.6%
Pre 2008 Loans, 1001-1500 character description343162.7%0%64%35.9%
Pre 2008 Loans, 1501-2000 character description235960.5%0%61.8%38.2%
Pre 2008 Loans, 2001-2500 character description178255.3%0%56.9%43.1%
Pre 2008 Loans, 2501-3000 character description127954.2%0%56.5%43.4%
Pre 2008 Loans, 3001 and greater character description270351.5%0%52.5%47.4%

Loans from 2008 and Later
DescriptionTotal LoansPaidCurrentRecoveredNever Recovered
2008 And Later Loans, Description 0-749 Characters807724.7%62.3%24.9%10.5%
2008 And Later Loans, Description 750-1250 Characters776434.5%45.5%34.9%17.1%
2008 And Later Loans, Description 1250 Characters or More718644.3%28.4%44.9%24.5%

Pre-2008 Loans By Credit Grade
DescriptionTotal LoansPaidCurrentRecoveredNever Recovered
Pre 2008 Loans, AA, A, B All607875.4%0%76.7%23.2%
Pre 2008 Loans, AA, A, B 1249 or fewer character description323178.6%0%79.7%20.3%
Pre 2008 Loans, AA, A, B 1250 or more character description278871.6%0%73.3%26.6%
Pre 2008 Loans, C, D, E All868657.3%0%58.5%41.4%
Pre 2008 Loans, C, D, E 1249 or fewer character description363058.8%0%60%39.9%
Pre 2008 Loans, C, D, E 1250 or more character description497556.2%0%57.4%42.6%


  1. Seems like the more likely conclusion is that for the LENDER, the fewer characters in the borrower's description, the better. Not sure how it is better for the borrower to not write a description, because we don't know how many loans were funded vs not funded with/without descriptions (or please say so if I am missing a different conclusion, but I think that is what you are saying in the second-to-last paragraph).

  2. I meant that it seems like writing a longer description can only get a borrower in trouble. A sensible borrower, looking at this data, would keep their listing short and sweet.

    But you're right; the better conclusion is as you specify: for lenders it may be better to invest in loans with shorter descriptions than loans with longer descriptions.

    That does give me the idea to look at the loan description lengths of the requests themselves. I wonder if there's a sweet spot for getting funded in loan description length.