Fundamentals of Business Analytics & Intelligence

Prosper Loan Data

Final Report

Submitted by - Group 3

S No. NAME REG NO

1 Aayush Grover M109-21
2 Anup Akashe M117-21
3 Karishma Choudhary M153-21
4 Shubhani Verma M194-21
5 Sneha Jha M196-21
6 Srishti Joshi M200-21
 Introduction

With over $9 billion in funded loans, Prosper is the first marketplace lending platform in
America. This data set contains 16,383 loans with 82 variables on each loan, including loan
amount, borrower rate (or interest rate), current loan status, borrower income, borrower
employment status, borrower credit history, and the latest payment information.

About Dataset:
Unique Values: 16,383
Total number of columns/Variables: 82
Important Variables:
● Credit Grade: A measurable evaluation of a borrower's creditworthiness in relation to a
financial obligation or in general.
Available credit grades are: AA, A, B, C, D, E, HR
● Term: Duration of loan
● Loan Status: Available loan status are: completed, Current, Past due, Charged off,
Defaulted
● Borrower APR: The total cost of your loan is calculated using the annual percentage rate
(APR). It is an annual rate that reflects the true cost of the borrowed money on an annual
basis. It accounts for all costs incurred during the loan's tenure, including any setup fees
and the interest rate.
● Borrower Rate: The interest rate at which money may be borrowed
 Analysis of Data Set: Tableau

1. State wise default rate

Inferences:
● Average default rate: 0.0500 - 0.1886
● Color gradient emphasizes the extent/depth of average default rate

State Average default rate

Lowest default rate Wyoming 0.0680

Highest default rate North Dakota 0.1886

*Note: Alaska has an average default rate of 0.0500
 2. Income Range

Inferences:
● Average default rate: 0.0057 - 0.1599
● Color gradient emphasizes the extent/depth of average default rate

Income Level Average default rate

Lowest default rate $100,000+ 0.0825

Highest default rate $1- $24,999 0.1452

 3. Student Category

Inferences:
● Average default rate: 0.0477 - 0.1367
● Color gradient emphasizes the extent/depth of average default rate
● Higher grade students have more loans and a lower default rate with an exception of
sophomores

Occupation Count of loan Average default rate

Lowest default rate College Graduate 31 0.0477

Student

Highest default rate College Sophomore 6 0.1367

 4. Occupation

Inferences:
● This plot shows the relationship between the default rate and the borrowers rate of the
different occupation types.
● It clearly shows that a higher the average default rate implies a higher average borrower
rate. Prosper score can be a determinant factor of borrower's rate.
● College Sophomores have a highest borrower rate of 0.2754 with a highest average
default rate of 0.6250
 5. Prosper Ratings

Inferences:
● Prosper loans are assigned a rating from AA (lowest risk, lowest return) to HR(highest
risk, highest return)
● The plot implies that a better credit rating means a lower default rate

Prosper Rating Average default rate Average default rate

(Lower) (Upper)

AA 0.0000 0.0324

C 0.0990 0.1023

HR 0.0724 0.2000
 6. Returns and Losses

Inferences:
● Average estimated return: 0.05436 - 0.12564, Average Estimated Loss: 0.0146- 0.1734
● Prosper rating is a good indicator and the general principle is : higher risk means higher
return
● Loans with HR rating have highest risk but don’t have highest estimated return
 7. Net Principal Loss

Inferences:

● Average Net Principal Loss- 149.5- 666.3

● Loans with rating D has the highest actual principal losses than loans with E and HR

Prosper Rating Avg.NetPrincipal Loss

Lowest Avg.NetPrincipal AA 149.5

Loss

Highest Avg.NetPrincipal D 666.3

Loss
 Story

Dashboard 1:

Inferences:
● After 2009, the market of online personal loan has grown consistently, significantly
since 2013, but declined at the start of 2014.
● There has been a decline in the borrower’s credit score over time.
● In certain states of the US, the average default rate has increased to over 18%.
Dashboard 2

Inferences:
● Factors that contribute to lower default rate are:
❖ More income
❖ Lower borrowing rate
❖ Better Prosper rating

● An interesting pattern among college students were discovered, demonstrating that with
the exception of sophomores , higher grade students had more loans and a lower default
rate
Dashboard 3:

Inferences:
● Prosper rating is a good indicator of default rate.
● The general principle that applies is higher the risk, higher the return. However, loans
with a rating of HR have the highest risk involved, but not the corresponding highest
return.
● Loans with rating D have the highest principal loss, followed by loans of rating E and
HR.
● It is advised not to put money/borrow loans from loans with rating D
 Hypothesis Testing using Regression

After analyzing the dataset through various graphical representations, we formed the following
hypothesis and applied simple linear regression on the same for testing:

Independent variables: Borrower Rate, Credit Rating, Income

Dependent variable: Default Rate

1. Null Hypothesis - H(0): β1 = β2 = β3 = 0

There is no statistically significant relationship between the predictor variables and the
dependent variable.
2. Alternate Hypothesis- H(A): β1 = β2 = β3 ≠ 0 (Coefficients are not equal to 0)
There exists a relationship between variables.

R-squared = 0.635
Around 63.5% of data fits the regression model. Hence, the Regression Model would be able to
make predictions on the basis of predictors selected.

Regression Equation:
Default Rate = 0.9829 + 0.0093*BorrowerRate - 0.003*CreditRating - 0.7893*MonthlyIncome
Observations:
● Higher BorrowerRate -> Higher Default Rate
● Higher CreditRating -> Lower Default Rate
● Higher MonthlyIncome -> Lower Default Rate