Borrowers in the West repay faster

Andrey Kamenov, Ph.D. Probability and Statistics

It is no secret that some people prefer to repay their debts once they are able to, instead of waiting for the due date. Let’s see if this philosophy applies to the peer-to-peer lending market.

Here we focus on the both major P2P lending marketplaces in the U.S.: Lending Club and Prosper. We also define the early repayment rate to be the percentage of all loans currently active which have been repaid at some age (in months since the origination date).

The early repayment rate for both marketplaces is pictured on the above chart. As you can see, by the end of the first year around two percent of all current loans are completed each month.

The difference between the highest and the lowest grade borrowers is not very significant, but still noticeable. In general, higher-grade borrowers are more likely to complete their loans closer to the due date. In contrast, lower-grade borrowers more often repay their loans very early (during the first year). This fact can be attributed to the difference in loan sizes.

There's also an interesting pattern emerging on the map below.

As you can see, early repayments are more common in the western U.S. This holds true for both Prosper and Lending Club datasets. For the latter, 16.4 percent of all loans issued to California residents are completed before their due dates. Significantly lower numbers are registered in the other large states - New York, Texas and Florida all are within the 13.2 - 13.4 percent range.

While lower numbers are generally observed for Prosper loans, the difference stays roughly the same.


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About Andrey Kamenov

Andrey Kamenov, Ph.D. Probability and Statistics

Andrey Kamenov is a data scientist working for Advameg Inc. His background includes teaching statistics, stochastic processes and financial mathematics in Moscow State University and working for a hedge fund. His academic interests range from statistical data analysis to optimal stopping theory. Andrey also enjoys his hobbies of photography, reading and powerlifting.

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