Applied Economics

ISSN: 0003-6846 (Print) 1466-4283 (Online) Journal homepage: http://www.tandfonline.com/loi/raec20

Evaluating borrower’s default risk in peer-to-peer

lending: evidence from a lending platform in China

Xuchen Lin, Xiaolong Li & Zhong Zheng

To cite this article: Xuchen Lin, Xiaolong Li & Zhong Zheng (2016): Evaluating borrower’s default
risk in peer-to-peer lending: evidence from a lending platform in China, Applied Economics, DOI:
10.1080/00036846.2016.1262526

To link to this article: http://dx.doi.org/10.1080/00036846.2016.1262526

Published online: 09 Dec 2016.

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APPLIED ECONOMICS, 2017
http://dx.doi.org/10.1080/00036846.2016.1262526

Evaluating borrower’s default risk in peer-to-peer lending: evidence from a

lending platform in China
Xuchen Lina, Xiaolong Lib,c and Zhong Zhengd
a
School of Economics and Management, Beijing University of Posts and Telecommunications, Beijing, China; bSchool of Economics, Peking
University, Beijing, China; cChina National Health Development Research Center, NHFPC, Beijing, China; dInstitute of Industrial Economics,
Chinese Academy of Social Sciences, Beijing, China

ABSTRACT KEYWORDS
Recent years have witnessed the popularity of online peer-to-peer lending, which allows indivi- Default risk; credit risk
duals to borrow from and lend to each other on an Internet-based platform. Using data from a assessment; peer-to-peer
large P2P platform in China, this article explores the factors that determine the default risk based lending; demographic
on the demographic characteristics of borrowers. Moreover, we propose a credit risk evaluation characteristic
model, which can quantify the default risk of each P2P loan. Empirical results reveal that gender,
JEL CLASSIFICATION
age, marital status, educational level, working years, company size, monthly payment, loan D12; G20
amount, debt to income ratio and delinquency history play a significant role in loan defaults.
Finally, we analyse the relationship between default risk and these contributory variables, and the
possible causes are also discussed in this study.

I. Introduction strengthen the trust in borrowers. Improving and

fostering the trust of lenders to borrowers will alle-
With the arrival of Web 2.0, establishing online
viate adverse selection and moral hazard problem.
market and virtual community with convenient
Such mechanisms, however, are quite hard to carry
access has become a relatively easy thing. The online
out in the online environment due to its significant
peer-to-peer (P2P) lending market is that in which
transaction costs and the fact that borrowers and
borrowers and lenders can meet virtually and imple-
lenders did not physically contact. Given the char-
ment loan business without the involvement of tra-
acteristics of borrower which affect the default rate
ditional financial institutions. As supported by an
of loans, borrowers can allocate their investment
Internet-based platform, P2P lending has been intro-
more efficiently. Therefore, our study is to solve
duced as a new e-commerce phenomenon in the
such a problem: what are the borrowers’ personal
financial field; it has great potential to provide
characteristics that affect the default rate?
more economical efficiencies (Berger and Gleisner
There are some of the existing researches that ana-
2009; Wang, Greiner, and Aronson 2009; Bachmann
lyse the credit risk and default rate of loans. With a
et al. 2011; Milne and Parboteeah 2016).
new dataset of credit card accounts, Gross and Souleles
One important problem in online P2P lending
(2002) analysed credit card delinquency and examined
market is the information asymmetry between bor-
the relative importance of different variables in pre-
rowers and lenders, that is, the trustworthiness of
dicting default (Gross and Souleles 2002). Using the
borrowers are unknown to lenders or the online
micro-credit data in Canada, Gomez and Santor (2003)
platform. Such asymmetric information may lead
found that the default rate of group lending is lower
to some problems, such as moral hazard and adverse
than traditional individual lending (Gomez and Santor
selection (Stiglitz and Weiss 1981; Akerlof 1970).
2003). Using a random sample of 100 poultry farmers,
Generally speaking, such problems can be mitigated
Oni et al. explored and analysed the factors affecting
and alleviated via several measures; in the conven-
loan default among poultry farmers in Ijebu Ode Local
tional bank-lending market, banks can use guaran-
Government Area of Ogun State. They found that
tee, regular reporting and certified accounts to
farmers’ age, farmers’ income and educational level

CONTACT Xiaolong Li tell714@gmail.com School of Economics, Peking University, Beijing, China

© 2017 Informa UK Limited, trading as Taylor & Francis Group
2 X. LIN ET AL.
are influence default in loan repayment significantly
(Oni, Oladele, and Oyewole 2006). The study of Iyer
et al. (2009) has illustrated that borrowers can use both
hard and soft data about the borrowers to assess one-
third of the borrower’s credit risk (Iyer et al. 2009). Lin,
Prabhala, and Viswanathan (2013) analysed the role of
social relations in the assessment of default risk, and
found that having a powerful social networking is a
significant factor of lowering the default risk of loans
(Lin, Prabhala, and Viswanathan 2013). Using data
from the National Sample Survey 54th round,
Chaudhuri et al. analysed the approval of a loan by
the financial institutions based on the sample selectiv-
ity model. And the results revealed that in rural India,
credit rationing does exist in the credit market and
village level infrastructure acts a crucial role in deter-
mining the behaviour of credit rationing (Chaudhuri
and Cherical 2012). Study by Duarte, Siegel, and
Young (2012) further pointed out that the borrowers
who seem more reliable get higher credit scores, and
have higher possibilities to have their loans funded and
make the default rates less (Duarte, Siegel, and Young
2012). Emekter et al. (2014) found that FICO score,
credit grade, revolving line utilization and debt-to-
income ratio play a significant role in loan defaults
(Emekter et al. 2014). To help a local government
estimate the interest rate in accordance with its credit
risk premium, study by Navarro-Galera et al. proposed
a loan pricing model and found that the probability of
default is affected by population, socioeconomic and
financial factors (Navarro-Galera et al. 2015).
In the last 2 years, there has been a number of
research that studied the credit risk in the P2P
lending marketplaces. The study of Guo et al.
(2016) proposed an instance-based credit risk assess-
ment model to quantitatively assess the risk of loans
in the P2P lending market (Guo et al. 2016). Using a
dataset from Lending Club, Eid et al. studied the
impact of income rounding on loans outcomes,
they found borrowers with a rounding tendency
have a higher probability of default rate and such
borrowers are less likely to prepay than borrowers
with more accurate income reporting (Eid, Maltby
and Talavera 2016). Study by Agarwal et al. (2015)
investigated the role of a personal guarantee in P2P
marketplaces; the results indicated that the loans
with guarantees are associated with a higher prob-
ability of getting the loans and a shorter time inter-
val between posting and closing, but such loans
show a higher default rate on average (Agarwal
et al. 2015). The study of Ma and Wang (2016)
analysed the factors that influence the credit risk in
P2P lending from three aspects, including bor-
rowers, P2P lending platform and environment,
and they used the method of interpretative structural
modelling to explore the internal relationship
between these factors (Ma and Wang 2016).
Serrano-Cinca et al. proposed a profit scoring system
which can be used to predict the expected profit-
ability of investing in P2P loans, and they analysed
the factors that determine loan profitability and
found these factors are different from factors that
affect the default risk (Serrano-Cinca and Gutiérrez-
Nieto. 2016). Chen and Han compared P2P lending
practices in China and the USA, and they found that
‘soft’ and ‘hard’ credit information both have pro-
found impacts on lending outcomes in these two
countries, but lenders in China rely more on ‘soft’
credit information (Chen and Han 2015). The study
of Chen, Zhou, and Wan (2016) explored the rela-
tionship between people’s group social capital and
their lending outcomes in the P2P lending market-
place (Chen, Zhou, and Wan 2016).
Majority of the existing empirical studies of credit
evaluation used data from P2P lending platforms of
the U.S.A (such as Prosper and the Lending club),
meanwhile most of these studies were based on
FICO score model. In China, however, there is no
unified credit scoring system even in conventional
commercial banks and other financial institutions,
most lending platforms in China do not make its
credit risk assessment method known to public, and
the traditional FICO credit risk assessment model
may not be applicable to the P2P lending market in
China.
Based on this, the goal of our article is to evaluate the
default risk of the borrowers using loan data from a
P2P lending platform in China, which will help bor-
rowers and lending platforms make more effective
decision to reduce investment risk. From the perspec-
tive of default rate, we propose a credit risk assessment
model to analyse the borrowers’ credit risk based on
their demographic characteristics and corresponding
loan information. Specifically, with the combination
of qualitative and quantitative methods and using bin-
ary logistics regression method to establish model, we
study the relationship between borrowers’ credit risk
and their personal characteristics, characteristics of

loans and other contributory factors, to provide more
effective credit risk assessment method for lending plat-
forms and lenders.
This article contributes a lot to the studies about
the emerging P2P lending market. While few exist-
ing studies discussed about borrowers’ credit screen-
ing problems in P2P lending, our study has the
following several aspects differing from prior studies.
First, this study utilizes a new dataset which comes
from a large P2P lending platform in China, which
broadens the study of credit risk analysis. In con-
trast, most previous research utilized the data from
P2P lending platforms in the U.S.A (such as Prosper
and the Lending club). Second, this article analyses
the default rate of loans based on the borrowers’
demographic factors, which will be conducive to
lenders to make an optimal investment strategy.
This study will proceed as follows. In Section II,
we describe and summarize the descriptive statistics
of the data used in our study. Section III describes
the methodology and presents the empirical results
for measuring the default risk of borrowers. Finally,
Section IV discusses the implication of the empirical
result and concludes the whole article.
II. Data
In this section, we describe and summarize the
descriptive statistics of the data used in our study,
including the loan status and the characteristics of
loan applicants. This article uses 52,017 loan applica-
tions from 1 January 2015 to 31 May 2015 obtained
from www.yooli.com, which is a large P2P lending
platform in China. Through data preprocessing and
data screening, we excluded the loan cases which have
missing value variables or outliers (for instance, in
some loan cases, the age of borrower is over 100, or
borrower’s monthly income is more than 50,000
RMB et al.), and eventually we get 48,784 valid loan
cases, the total amounts of all these loans are approxi-
mately 169 million RMB. Table 1 shows the loan
status for all the loans requested from 1 January
2015 to 31 May 2015. As shown in Table 1, 9.95%
of all the loan applications, that is, a total amount of
17.2 million RMB may be lost, because the borrowers
1
There are serious differences of social and economic development existing between inland and coastal cities in China. According to the different
development level, China can be divided into three economic belt: Eastern China, Central China and Western China. The economic development of
Eastern China is the best of these three regions, Central China is the medium region for economic development, and the economic development of
Western China is relatively slow.
APPLIED ECONOMICS 3
Table 1. Loan distribution by the loan status.
Number of
All loans loans Per cent Amount Per cent
Late in payment 4854 9.9500 ¥17211079 10.1608
Current 42576 87.2745 ¥147612512 87.1449
Fully paid 1354 2.7755 ¥4563909 2.6944
Total 48784 100.0000 ¥169387500 100.0000
of these loan requests are not paying the regular
instalments and not paid back in time (either fully
or partially). 2.78% of these loans has been fully paid,
which constitute about 4.6 million RMB. The 148
million RMB loans account for 87.27% are in current
state. From the perspective of lenders, the most essen-
tial concern is whether borrowers may default or not
in the future. If some of the borrower’s personal
characteristics can help to predict the default like-
lihood of the borrower, lenders will benefit a lot.
Based on the descriptions of loan status, during the
study time the platform provided a total of 48,785
loans, 4854 of these loans are late payment. Although
these default loans can be converted into a loan-
default rate of 9.9%, it can be biased downward
because the default rate is gradually rising with the
maturity (Emekter et al. 2014).
According to the available data, the variables of each
loan case include borrower’s area (the area where the
borrower live), gender, marital status, children status
(with or without children), educational level, monthly
income (one thousand RMB as a unit), the scale of
working company, working years, age, loan amount
(one thousand RMB as a unit), repayment periods (the
months of payment periods), monthly payment(one
hundred RMB as a unit), debt to income ratio, delin-
quency history (whether there was 7 days overdue
previously) and default status (whether the payment
is overdue or not now) et al. In order to simplify the
model, increase the stability of the model and reduce
the computational complexity, we preprocess these
alternative indicators, and divide some alternative indi-
cators into groups. Among these variables, borrower’s
area, gender, marital status, children status, educational
level and the scale of working company are categorical
variables. Specifically, borrower’s area was divided into
Western China, Central China and Eastern China1;
marital status contains unmarried, divorced and mar-
ried; educational level is divided into below high
4 X. LIN ET AL.

Table 2. Descriptive statistics.

N Minimum Maximum Mean SD Skewness SE Kurtosis SE
Gender 48784 1 2 1.37 0.482 0.555 0.011 −1.692 0.022
Borrower’s area 48784 1 3 1.01 0.108 18.257 0.011 333.418 0.022
Marital status 48784 1 3 1.62 0.899 0.830 0.011 −1.246 0.022
Children status 48784 0 1 0.24 0.430 1.190 0.011 −0.584 0.022
Age 48784 16 55 25.06 6.081 1.570 0.011 2.859 0.022
Educational level 48784 1 3 2.04 0.729 −0.055 0.011 −1.116 0.022
Monthly income 48784 0.3 36.0 3.923 2.0922 4.446 0.011 40.163 0.022
Company size 48784 1 3 1.91 0.769 0.161 0.011 −1.294 0.022
Working years 48784 0 44 1.82 2.956 5.005 0.011 37.347 0.022
Loan amount 48784 0.8 10.0 3.472 1.0478 0.120 0.011 0.130 0.022
Repayment periods 48784 6 24 12.83 5.189 0.865 0.011 0.227 0.022
Monthly payment 48784 0.4 16.3 3.097 1.5056 1.394 0.011 2.551 0.022
Debt-to-income ratio 48784 0.004 14.42 0.0931 0.08841 88.285 0.011 14158.737 0.022
Delinquency history 48784 0 1 0.14 0.349 2.050 0.011 2.202 0.022
Borrower’s area was divided into Western China, Central China, Eastern China, and they are assigned value 1,2,3 in the statistics software, respectively;
gender of male and female is assigned 1 and 2, respectively; marital status includes unmarried, divorced and married, assigning value 1, 2, 3, respectively;
educational level is divided into below high school, high school and undergraduate or postgraduate, assigning value 1, 2, 3, respectively; company size is
divided into mini-company, small company and medium or large company, assigning value 1, 2, 3, respectively.

school, high school and undergraduate or postgradu-
ate; the scale of working company is divided into mini-
company (below 10 staff), small company (10 to 100
staff) and medium or large company (more than 100
staff). Making such classifications for educational level
and company scale is because the borrowers in this
dataset are mainly lower income and have lower edu-
cation levels. The descriptive statistics of the loan data
used in this study is shown in Table 2, including the
general characteristics of borrowers and loans. As
shown in Table 2, based on our sample of 48,784
loan applicants, 30,916 people are male accounting
for 63.4%, remaining 17,868 people are female
accounting for 36.6%. Most borrowers come from
West China. Borrowers are within the age group of
16–55 with a mean of 25-years old, and the average
working year is about 1.8 years. 66.9% of borrowers are
unmarried, 28.5% of borrowers are married and the
remaining 4.6% of borrowers are divorced. About
three-fourths of borrowers have no kid and one-fourth
of borrowers have kid. As for borrowers’ education
level, 12,108 borrowers’ education experience is below
high school, accounting for 24.8%, 22,811 borrowers
have education degree of high school, accounting for
46.8%, 13,865 people whose education degree achieve
Bachelor’s degree or above contribute 28.4% of all
borrowers. On average, a borrower earn 3923 RMB
every month. 34.7% of borrowers are working in mini-
company, 40% of borrowers are working in small
company, and the remaining 25.3% of borrowers are
working in medium or large company. 85.8% of bor-
rowers have no default history, and only 14.2% of
borrowers have default behaviours in the past. The
average loan amount is 3472 RMB and a borrower
need to pay 309.7 RMB per month on average. The
average repayment period is 12.8 months, and the
average debt-to-income ratio is 0.093.
III. Empirical results
In this section, we explore the factors that influence
the possibility of loan default. First, we carry on the
nonparametric tests to explore whether there is a
significant difference in the variables between good
status loans and defaulted loans. Second, by employ-
ing the binary logistic regression, the default risk of a
loan applicant is modelled.
The results of the nonparametric tests are reported in
Table 3, in which summarized the differences between
good loans and defaulted loans. Good status loans are
loans that are fully paid or in payment schedule, and
defaulted loans are loans which are late in payment and
likely to lose. As we can see from Table 3, the loan and
borrower characteristics of the two groups are signifi-
cantly dissimilar. By examining the chi-square statistic
values of Kruskal–Wallis, we can find that the variables
including gender, age, marital status, children status,
educational level, working years, monthly income, loan
amount, debt to income ratio and delinquency history
between these two groups are statistically different at 1%
level. Specifically, the results show that the amount
borrowed on a defaulted loan is higher and the debt to
income ratio is lower. And the borrowers of defaulted
loans are more likely to be male, older, single, well-
educated staff of a large company. In addition, defaulted
 APPLIED ECONOMICS 5

Table 3. Nonparametric test of differences between defaulted Table 4 presents the empirical results of the logistic
loans and good loans. regression described above. In the first place, we use
Variables Defaulted loans Good loans
forward stepwise iterative maximum likelihood method
1 Gender Lower Higher
2 Age Higher Lower to estimate the regression model, and then it is esti-
3 Marital status Lower Higher mated again with backward stepwise iterative maximum
4 Children status Lower Higher
5 Educational level Lower Higher likelihood method. Both methods achieve similar esti-
6 Working years Lower Higher
7 Loan amount Higher Lower
mated result. Among the 14 variables included in the
8 Debt-to-income ratio Lower Higher regression model, 10 variables (gender, age, marital
9 Delinquency history Higher Lower
status, educational level, working years, company size,
monthly payment, loan amount, debt to income ratio,
loan borrowers are staffs with less seniority, and they delinquency history) influence the loan outcome signif-
tend to have children and delinquency history. icantly. All the estimated coefficients in the results are
In order to further explore the exact effect of each significant at the 1% level, excluding monthly payment
variable on the default rate of loans, we use the and educational level 1 (below high school) which are
binary logistic regression which contains all variables significant at the 5% level, and marital status 1 (unmar-
needed to investigate. We decide to employ the ried) and company size 2 (small company) which are
binary logistic regression model because the depen- not significant. Examining Hosmer and Lemeshow’s
dent variable of general regression is not binary. In test, it indicate that the model is sufficient in explaining
our study, explained variable is divided into normal the outcome of a loan with a chi-square value of 12.470
loan and default loan, it is just a binary classification and a significance of 0.131 (Hosmer and Lemeshow
problem to which the logistic regression is a good 2000). This model does not suffer from multi-collinear-
solution. At the same time, we expect to obtain the ity problem since all SEs of estimated coefficients are
default possibility of a certain borrower, namely, the much smaller than two. Cox & Snell R2 and Nagelkerke
probability of the dependent variable taking value 1, R2 for this regression model is 18.2% and 38.2%,
so the results of the regression model have intuitive respectively.
meaning. In the binary logistic regression, the As we can see from Table 4, we can get several
dependent variable represents the likelihood of the implications: (1) With this data sample, the area where
event that happens; in this case, it corresponds to a borrower live, with or without children, personal
default. Let us suppose that z is a continuous num- monthly income and the months of payment period
ber that was not observed, it represents the prob-
ability of a default. As a result, a higher value of z Table 4. Binary logistic regression results.
indicates a higher default probability. In order to Variables β SE Wals Sig. Exp(β)
transform this continuous number into a number Gender −0.357*** 0.042 71.715 0.000 0.700
Marital status 8.328 0.016
ranging from 0 to 1, we utilize the transformation Marital status 1 0.035 0.051 0.475 0.490 1.036
Marital status 2 0.240*** 0.083 8.327 0.004 1.271
as follows: Educational level 13.491 0.001
Educational level 1 0.121** 0.053 5.162 0.023 1.128
1 Educational level 2 0.169*** 0.046 13.490 0.000 1.184
p¼ (1) Company size 12.190 0.002
1 þ ez Company size 1 0.127*** 0.047 7.172 0.007 1.135
Company size 2 −0.013 0.046 0.077 0.781 0.987
where p represents the probability of a default. It can Working years −0.027*** 0.007 13.610 0.000 0.973
Age 0.012*** 0.004 8.370 0.004 1.012
be further assumed that in the binary logistic regres- Loan amount 0.082*** 0.020 16.299 0.000 1.086
sion, k explanatory variables are linearly correlated Monthly payment 0.046** 0.018 6.219 0.013 1.047
Debt-to-income ratio −0.013*** 0.005 7.536 0.006 0.987
with z, so this model can use the following description: Delinquency history 3.278*** 0.037 7982.197 0.000 26.529
Constant −3.616*** 0.167 468.557 0.000 0.027
Hosmer and Lemeshow’s Test: Chi-square = 12.470, Significance = 0.131
z ¼ β0 þ β1 x1 þ β2 x2 þ β3 x3 þ ::: þ βk xk þ u;
The base value of the model for gender is male; the base value for marital
(2) status is married, marital status 1 represents unmarried, marital status 2
represents divorced; the base value for educational level is the highest
education degree, and educational level 1 and 2 represent below high
where x is the explanatory variable and k is the num- school and high school degree, respectively. The base value for company
ber of explanatory variable (Hosmer and Lemeshow size is the largest company size, company size 1 is mini-company and
company size 2 is small company. ** represents significance at the 5%
2000). level, and *** represents significance at the 1% level.
6 X. LIN ET AL.
have no significant influence on the default rate of a
certain loan. (2) The default rate of female borrowers is
less than that of male borrowers, corresponding to 70%
of men’s. (3) The default rate of a borrower who is in the
divorce state is significantly higher (1.271 times) than
those whose marriage is compatible. As for unmarried
young people, married or not has no significant impact
on the default rate. (4) The education level is signifi-
cantly associated with the default risk, the default rate of
borrowers with low education degree is significantly
higher than that of borrowers with high education
degree. The default rate of borrowers who only have
high school degree is 1.184 times of those who have at
least Bachelor degree. (5) The company size where
borrower work is significantly related to the default
rate, the default rate of a borrower working in the
mini-company is significantly higher than that of bor-
rower working in medium or large company, the former
is 1.135 times of the latter. (6) Borrowers with long
working years are associated with low default risk, as
the working age of a borrower increase by 1 year, the
default rate will be reduced to 0.973 of the original. (7)
The older a borrower get, the higher the default risk will
be, a borrower’s default risk increases by 1.2% for every
additional age year. (8) Loans with high loan amount are
related to high default risk, the default rate increases by
8.6% for every 1000 RMB loan amount. (9) The more a
borrower needs to repay every month, the higher the
default risk will be. A borrower’s default risk raised by
1.2% for every 100 RMB monthly repayments. (10) The
debt-to-income ratio of a borrower is related to the
default rate significantly. As the debt-to-income ratio
increases by 1%, the default rate will reduce to 98.7% of
the original. (11) If a borrower has defaulted in the past,
it will greatly enhance the default risk.
On the basis of the regression results, we can
obtain the probability of a default for a certain loan
using the following model with the estimated coeffi-
cients as reported in Table 4.
z ¼ β0 þ β1 ðgenderÞ þ β2 ðmarital statusÞ
þ β3 ðeducational backgroundÞ
þ β4 ðcompany sizeÞ þ β5 ðworking yearsÞ
þ β6 ðageÞ þ β7 ðtotal fundedÞ (3)
þ β8 ðmonthly paymentÞ
þ β9 ðdebt to income ratioÞ
þ β10 ðdelinquency historyÞ þ u
To illustrate, for a male, married borrower with age
of 30, educational level of middle school, working years
of 10, loan amount of 3000 RMB, monthly payment of
300 RMB and debt-to-income ratio of 10%, and he
works in a micro-enterprise and defaulted in the past,
the default probability of such a borrower is 57.5%.
(z ¼ 3:616 þ 0:169 þ 0:127  10  0:027 þ 30  0:
012 þ 3  0:082 þ 3  0:046  10  0:013 þ 3:278 ¼
0:302; p ¼ 1þe10:302 ¼ 0:575). Assuming that other vari-
ables remain the same, for a relatively safer borrower
without delinquency history, the probability of default
would only be 4.9%.
IV. Conclusion and discussion
For the P2P lending marketplaces, credit risk is an
important concern. In this article, we explored the
factors that determine the default risk and propose a
comprehensive credit risk evaluation model, which
can quantify the default risk of each P2P loan. Our
findings indicate that characteristics of borrowers
with low default risk are female gender, young adults,
long working time, stable marital status, high educa-
tional level, working in large company, low monthly
payment, low loan amount, low debt to income ratio
and no default history. This result signifies that apart
from the friendship and social ties of loan applicants
as discussed by Freedman and Jin (Freedman and Jin
2014) and Lin et al. (Lin, Prabhala, and Viswanathan
2013), the 10 factors reported above are also signifi-
cant in determining the default risk of loans.
Our findings suggest that in contrast to men,
women have relatively lower default rate, which is
consistent with the result obtained by Chen, Li, and
Lai (2014). Previous study also indicated that in
financial decision-making, women display a com-
mon trait of less risk-seeking behaviour than men
(Powell and Ansic 1997). Borrowers who have nor-
mal and healthy marriage have lower default risk,
which is in accord with our normal cognitive.
Divorced borrowers need to take care of their family
alone, so they are in relative poor financial situation,
and they are likely to be overdue in the future. High-
educated borrowers, especially borrowers who have
Bachelor degree or above, their default rate is sig-
nificantly lower than those borrowers with low edu-
cation degree, this suggests that an increase in the
educational level (that is, more formal education

received) will decrease the probability of loan
default. The reason of this phenomenon, on the
one hand, maybe people with higher education
level are more aware of reputation and prestige,
they are more likely to pay bills on time; On the
other hand, it may be a person who understands the
value of credit is more likely to get a higher degree.
The default rate of a borrower who works in large
company is lower than that of a borrower who works
in small company. The reason could be the one who
works in large enterprise has more colleagues, the
adverse effects of default is more serious for them,
and also, the financial status of borrowers who work
in large company is better (higher income, and they
can borrow money from more colleagues), so their
abilities of repaying timely is stronger. The default
rate of a loan decreases with the increase of the
borrower’s working age. The more years a borrower
worked for, the better his financial status will be, and
meanwhile people who work for a long time are
more likely to realize the importance of credit. At
the same time, the default rate increases with the
increase of borrower’s age. As we can see from
Table 2, in our sample, the borrower’s age is ranging
from 16 to 55-years old; for this age range, the older
a borrower gets, the heavier the burden of his family
is, so the higher his default risk will be. It is inter-
esting to note that there is high correlation between
high debt-to-income ratio and low default rate, and
this finding is consistent with the empirical result of
the study of Riza et al. (Emekter et al. 2014), which
use the data from the Lending Club. The possible
reason for this funny phenomenon is that borrowers
whose debt-to-income ratio is low may not care
about the economic cost of default, and the cost of
overdue payment is relatively small. If a borrower
had default behaviour at one time, his probability of
loan default will increase dramatically. For lenders,
this finding implies that lenders should not lend
money to the ones who have delinquency history;
for borrowers, it reveals the importance of credit and
the large cost of loan default.
Acknowledgements
This article was supported by Major Program of the National
Social Science Foundation of China under Grant No.
15ZDB154.
APPLIED ECONOMICS 7
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
This article was supported by Major Program of the National
Social Science Foundation of China under Grant No.
15ZDB154.
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