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Lending Club Case Study

Group Name:
1. Nikunj soni
2. ManMohan Nayak
3. Naveen Samineni
4. Shaik Nisaruddin
Problem statement

A consumer finance company which specialises in lending various types of


loans to urban customers. When the company receives a loan application, the
company has to make a decision for loan approval based on the applicant’s
profile. Two types of risks are associated with the bank’s decision:

If the applicant is likely to repay the loan, then not approving the loan results
in a loss of business to the company

If the applicant is not likely to repay the loan, i.e. he/she is likely to default,
then approving the loan may lead to a financial loss for the company.
Objective of Analysis

The company wants to understand the driving factors (or driver variables)
behind loan default, i.e. the variables which are strong indicators of default.
The company can utilise this knowledge for its portfolio and risk assessment

Strategy
Univariate Analysis
Bivariate Analysis
Derived Matrix
Univariate Analysis

Grade B has highest percentage of applications.


People with 10+ years exp have highest applications.
Mortgage and Rent have same percentage of applications.
Not Verified status have highest percentage of applications.
14% of applications has loan status as chargedoff.
Debt Consolidation is top purpose of loan application.
3289183.70 is probably total loss due to all chargedoff.
Bivariate Analysis Grade vs Loan Status

Grade B, C and D have defaulted more


Bivariate Analysis Purpose vs Loan Status

Other and Small business have highest default to fully paid loans.
Bivariate Analysis Emp Length vs Loan Status

Clearly lesser the employment length, higher the chance of default.


Bivariate Analysis Verification status vs Loan Status

clearly verified and source verified has more defaults.


Bivariate Analysis Interest Rates vs Loan Status

Higher the interest rates, higher the chance of default


Bivariate Analysis Home OwnerShip vs Loan Status

Mortgage and Rent both have almost similare charged off


Conclusions and Recommedations

Grade B, C and D have defaulted more, so control in giving those grades loans.
Similarly loans given for other purpose and small businesses have more
defaulted, those can also be kept in checked.
Applications with lesser Emplyoment length have more defaults and hence
loans to them should be controlled.
Verified and Source Verified applications have defaulted more, so verification
process needs to be improved.
Higher the interest rates, higher the chances of default.
Higher the loan amount, chances of getting default is higher
Conclusions and Recommedations

More the installments, chances of getting default is higher.


Public bankruptcies does not indicate anything.
Clearly average Debt-To-Income Ratio is high for loans defaulted.
Mortgage and Rent both have almost similar charged off.
Theoritically lending company should prefer a debt-to-income ratio lower
than 36%, with no more than 28% of that debt going towards servicing a
mortgage or rent payment.

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