An Empirical Study On The Impact Of Borrower's Characteristics On Loan Default In P2P Lending

P2P(Peer to Peer lending)refers to the financial model that the investor provides the small loan to the borrower through the third party platform under the premise of charging a certain interest expense.P2 P lending platform is the financial information intermediary service website combined with P2 P lending mode and Internet technology.All procedures are finished through the Internet.In 2005,the world's first P2 P network platform was established in UK.Users can invest and ask for a loan directly online.This new financial model quickly draws the attention of the public and society.In recent year,the domestic P2 P lending industry has developed rapidly.Now the number of P2 P lending platform on business is more the 4000.However,the frequent emergence of the platform collapse phenomenon exposed the poor credit risk management in P2 P lending industry.The high default rate takes a damage to not only investors but also the P2 P lending platforms,restricting the development of P2 P lending industry.Literatures have mainly focused on the study of investor behaviors,and some papers have studied credit rating and social capital influencing on loan default from the borrowers' point of view.Personal characteristics are representative in all information,reflecting the borrowers' personality,risk preference and credit risk.This articles focuses on how borrower's characteristics affect the loan survival time and the rate of default.The early data of personal loans come from the commercial banks and microfinance institutions,and hard to get.A large number of personal loan data published by P2 P lending platforms just make it happen,supplying a precious academic value in researching the role of information in lending transactions.Through research of the effect of borrower characteristics on loan survival time and loan default rates,marriage status cannot significantly affect both factors.Borrowers'educational background,length of work experience are protection factors.Higher education level and longer work experience can extend loan survival time and lowers default risks.Borrowers age are hazard factors,which means that the increase in age will decrease loan survival time and increase default risks.Empirical results also demonstrate that there exists a positive U-shaped relationship between interest rate and loan survival time.Within a certain range of interest rate,an increase in interest rate will not trigger a decrease of loan survival time.After interest rate surpasses a certain level,it can start to reflect risk pricing abilities;that is,higher loan interest rate corresponds to higher loan interest payments,which causes loan defaults in advance,decrease loan survival time.The relationship between loan amount and loan survival time is negatively U-shaped,as loan amount increases,survival time decreases.After loan amount surpasses a certain threshold value,increased loan amount can also increase loan survival time and decrease default rates.Further research demonstrates that investors have strong preferences for borrower characteristics.After considering loan bid(????)borrowers'financial status,borrower credit history,investors distinctively prefers to filter borrowers by their characteristics.Older,married borrowers with higher education level and longer work experiences will have a higher success rate when applying for loans.This suggests investors think that older and highly educated borrowers with family members and certain social work experiences are more trustworthy,responsible and their financial status are more stable,which suggests a stronger will and ability to pay off their loans.Notably,loan application success rate is one the main factors that affect investor loan decisions because investors are more inclined to provide loans to borrowers with a history of successful pay offs.Investors are also inclined to provide loans to borrowers with delayed payments,possibly considering that delaying payments represents a stronger will to pay off loans,but in reality,borrowers with more delayed payments have higher default rates.The conclusion of this paper provides two critical suggestions of online P2 P loan platforms: 1)the development of internet finance should include the construction system a credit evaluation system,information verification and publishing processes for individuals.The authenticity,accuracy and amount of information can help investors to identify possible credit risks related to borrowers.When verifying loan applications,online platforms should closely audit documents that are closely related to personal credit risks,and cooperate with offline financial institutions to ensure borrower information authenticity.2)Enhance investor education.When investors provide loans,they will distinctly prefer filtering borrowers by their characteristics and the default rates of these preferred borrowers are different from the expected rates of investors,which suggests that investor behavior is irrational.The most critical factor that affect investor providing loan is the number of success loan applications of borrowers,which suggests that online P2 P investors relies mostly on “feelings” and experience to invest and their ability to identifying risk is low.