This is the second post of a two part series on Lending Club loan descriptions by guest writer Sam Kramer. Sam spent the last 15 years working in the finance industry, where he was exposed to financial analysis and consumer credit. Sam is married, has two children, and includes investing in Lending Club amongst his hobbies. He can be contacted on Twitter @P2P_CT.
This post references charts included in the first part of this series. Please read Part 1 first – it will make much more sense that way.
Very short loan descriptions – 1-10 characters
The very short loan description default rate is notably high. Obviously these loans should be avoided, but is there something other than description length that can be used to identify problem loans? I don’t think I’d be comfortable investing with a strategy which allows 11 character loan descriptions (which show a lower default rate) but not 10 characters.
An examination of the very short loan descriptions showed a few different types:
- Blank descriptions – these descriptions only consist of 1 space, and are primarily responsible for the increased incidence of 1-10 character loan descriptions in Q4 2009 and Q1 2010. These are very rare outside of these two quarters;
- Descriptive – these are single or double word descriptions. “Car loan” and “pool” are quite common within this category;
- Thanks – a number of borrowers simply wrote “thanks” or “thank you”;
- Other – this category includes borrowers who inserted only a dollar amount, a single word (such as “help,” “hello” or “personal”). Gibberish was also included in this category, but is rare;
- None – a number of borrowers went to the trouble of writing “none,” “nothing” or “n/a” in their loan descriptions.
Regardless of my categorization, we can see all types of very short loan descriptions have relatively high default rates: