Andrey Kamenov, Ph.D. Probability and Statistics
There’s one thing that is especially interesting about peer-to-peer lending services. Who are the people that borrow money there? Do they need money to finance a home purchase? To buy a car? To merely consolidate their smaller debts, like credit cards?
The one (relatively) reliable way to tell this is to look at the descriptions the prospective borrowers provide for their loan applications. Unfortunately, not everyone does this – but still, looking at the stories we have should provide us a general picture of what’s happening.
If you just open the data table and start reading, you will notice that most of the descriptions are the same. Not surprisingly, such words as “credit”, “loan” and “debt” are the most common. Still, it is interesting to look at the word cloud that we get here.
As you can see, the borrowers usually focus on themselves as they seek to provide the impression that their financial situations and jobs are stable. It is not uncommon to thank the potential investors for taking the time to look at the loan application.
As seen on the chart below, people who borrow larger sums are less likely to provide any description for their loans. Only 12.2 percent of those borrowing over $30,000 (with the maximum loan amount being $35,000) feel that it was necessary to add some words about their applications – compared to over 18 percent of people borrowing smaller sums (not more than $10,000).
Loan applications having non-empty description
Last but not least, some words exhibit clear geographical patterns when we map their occurrences. Again, it should not come as a surprise that the most common words (like “credit” or “loan”) do not. Still, once we move to slightly less popular phrases, it becomes clear that borrowers in different states need money for slightly different purposes.
Popularity of common words in loan applications’ descriptions
People in the eastern states seem to be more interested in home improvement - things like adding a water heater or finishing the basement.
People who live closer to the West Coast are more interested in their interest rates though - one of the commonly declared reasons for borrowing money on Lending Club is paying off other high-interest debts (usually credit cards).
Financing a car is also mentioned quite often. While there are no distinct regions visible on the map, the numbers still differ quite significantly. For example, such loans are 1.5 times more prevalent in California and Massachusetts than in New York and Texas.
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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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