Peer-To-Peer Lending: Classification in the Loan Application Process

This paper studies the peer-to-peer lending and loan application processing of LendingClub. We tried to reproduce the existing loan application processing algorithm and find features used in this process. Loan application processing is considered a binary classification problem. We used the area under the ROC curve (AUC) for evaluation of algorithms. Features were transformed with splines for improving the performance of algorithms. We considered three classification algorithms: logistic regression, buffered AUC (bAUC) maximization, and AUC maximization. With only three features, Debt-to-Income Ratio, Employment Length, and Risk Score, we obtained an AUC close to 1. We have done both in-sample and out-of-sample evaluations. The codes for cross-validation and solving problems in a Portfolio Safeguard (PSG) format are in the Appendix. The calculation results with the data and codes are posted on the website and are available for downloading.