Determinants of Loan Performance in P2P Lending

This research paper investigates the influential factors of loan performance in the online P2P lending industry. Unlike in traditional banking, lenders in P2P lending are mostly private and small investors which do not have the expertise to evaluate credit risks appropriately. They suffer from information asymmetry and are generally in disadvantage compared to the borrower. In order to solve information asymmetry, P2P lending platforms provide information regarding borrower characteristics and loan characteristics and assign a credit grade that should predict the default risks of loans. This study analysed 143,654 P2P loans that were funded on the P2P lending platform Lending Club between 2012 and 2013 with binary logistic regressions and finds evidence that the assigned credit grade is the most influential factor on loan performance. Further predictors of loan performance are the loan amount, annual income of the borrower, debt-to-income ratio and the number of inquires in the last 6 months. The actual influence of each determinant on loan performance is observed to be changing between different credit grades.