Determinants of borrowers' default in P2P lending under consideration of the loan risk class

Michal Polena () and Tobias Regner
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Michal Polena: School of Economics and Business Administration, Friedrich-Schiller-University Jena

No 2016-023, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: We study the determinants of borrowers' default in P2P lending with a new data set consisting of 70,673 loan observations from Lending Club. Previous research identified a number of default determining variables but did not distinguish between different loan risk levels. We define four loan risk classes and test the significance of the default determining variables within each loan risk class. Our findings suggest that the significance of most variables depends on the loan risk class. Only few variables are consistently significant across all risk classes. The debt-to-income ratio, inquiries in the past 6 months and a loan intended for a small business are positively correlated with the default rate. Annual income and credit card as loan purpose are negatively correlated.

Keywords: crowdfunding; peer-to-peer lending; P2P; credit grade; FICO score; default risk (search for similar items in EconPapers)
JEL-codes: D14 E41 G23 (search for similar items in EconPapers)
Date: 2016-12-14
New Economics Papers: this item is included in nep-ban, nep-mac and nep-pay
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Determinants of Borrowers’ Default in P2P Lending under Consideration of the Loan Risk Class (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2016-023

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