Business Understanding:
- Lending Club is a peer to peer lending company that utilizes a group of private investors to fund loan requests
- It has to make a decision for loan application approval based on the applicant’s profile and does risk assessment by assigning borrower grades and subgrades based on their credit history
- It is the largest online loan marketplace, facilitating personal loans, business loans, and financing of medical procedures
Types of risks:
- If the applicant is likely to repay the loan then not approving the loan results in a loss of business to the company
- If the applicant is not likely to repay the loan, i e he/she is likely to default, then approving the loan may lead to a financial loss for the company
Problem Statement:
- Lending club wants to understand the driving factors (or driver variables) behind loan default and utilize this knowledge for its portfolio and risk assessment It can identify these risky loan applicants, then such loans can be reduced thereby cutting down the amount of credit loss