Abstract

The loan grade is the most important factor in determining the interest rate on the loan. Most loans have a grade of an A, B, or C. The most common loan amount is $10,000 with a small spike in loans every $10,000 after that. The loan size distribution remains around the same in every loan grade, however the loan size does increase gradually as the loan grade decreases. Interest rates remain distinct in every grade with some variance. Credit card debt and debt consolidation are the most popular reason for individuals to take out a loan. Renewable energy is the one noteworthy outlier in this data. Most of the loanees in this dataset have a debt-to-income ratio less than one with a trend of higher income leading to a lower debt-to-income ratio. One individual owes over 10 times what he/she earns in a year.

Visual 1

A loan’s grade can provide some crucial information without going into detail. The grade can provide a rough estimate on the loan’s interest rate, what the loan is likely used for, and how reliable the loanee on their interest payments. Though loan providers will make more on loans that have a high interest rate, they will not provide as many loans as those with lower interest rates. Over three quarters of the loans seen in the data set have a grade between A and C. These loans have interest rates between 5 and 16 percent. People are more likely to take out a loan if the interest rate is within reason.

Visual 2

As seen in this graph, the most popular loan amount taken out is $10,000. Most often, loans have an even number in the thousands to make the interest payment easy to calculate. There is a slight peak between $25 and $30k which is likely due to round numbers being more appealing.

Visual 3

Adding on to the previous visual, most of the loans lie between $5,000 and $15,000, with $10,000 being the largest number of loans. This indicates that most people are comfortable taking on loans that are outside of a normal expenditure range, but are also not too large that would entail a long payback period. The lower grades have a larger loan amount. One would normally expect the smallest amount of loans to be in the upper loan amounts of $35,000 to $40,000, but the smallest amount of loans is those under $5,000. This implies that small loan amounts are unnecessary for most people, while amounts in the $5,000 to $15,000 range are feasible because of the relatively low amount and interest that they entail depending on the grade. The small number of upper range loan amounts ($35,000-$40,000) indicates that most people are uncomfortable taking on the high amounts and long payback periods those loans require.

Visual 4

The interest rate has an inverse relationship with the loan grade. Loans with an A grade will have the lowest interest rate while the opposite is true for the F grade loans. What is interesting is the variability of the interest rate between the grades. Though most of the loans within the grade are expected to be a certain percent, there are some outliers where the interest rate is abnormally higher or lower than the median value. There are some instances where the outliers of interest rates in loan grades are closer to one another, however these rates do not intersect and are distinct.

Visual 5

The visual of the Count per Loan Purpose portion of the data illustrates the reasons behind people receiving loans and the amount of people per purpose for receiving his or her loans. The three top factors for people receiving loans in the data set were debt consolidation, credit cards payments, and home improvement. The amount of loans used for debt consolidation is over twice as high as the next highest purpose which is credit card payments. This is evidence that most loans in this data set are to help recover from debt instead of using the loan for major purchases such as buying a car.

Visual 6

Debt plays a major role in why a person would need to take out a loan. Lower income loanees are less likely to be able to pay off their debts. Loanees with an annual income greater than $200k all have a debt-to-income ratio less than 1. These individuals are more likely to pay off their debt and less likely to take out a loan. There are a few cases of individuals being in debt; one individual owes over 10 times what he earns. This individual’s loan has a C rating.