# How Does the Urgency of Borrowing in Text Messages Affect Loan Defaults? Evidence from P2P Loans in China

Authors: Hong Liu; Mingkang Yuan; Meiling Zhou
Journal: Security and Communication Networks
 (2021)

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## Abstract

In P2P loans with information asymmetry, the text information described by the borrower plays an important role in alleviating the information asymmetry between borrowers and lenders. To explore the borrowing described in text information and its relationship with default behavior, this article selects credits from April 2014 to October 2016 as the repayment period and studies default data. This is performed based on the length of the excavated text, purpose of the loan, repayment ability, willingness to reimburse, five text variables, and degree of loan urgency. The empirical results show that text length has a significant negative correlation with the default probability of borrowers. Different loan purposes have different default risks. Interestingly, the more urgent a loan is, the more likely the borrower is to default. However, repayment ability information and repayment willingness information have no significant effect on default behavior. In addition, the NagelkerkeR2 improved by nearly 3% in the logistic regression model with the addition of text variables. In short, fully excavating loan description information is helpful in reducing the risk of loan default.


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## Body

## 1. Introduction

With the continuous integration of finance and Internet technology, a new type of online lending model called peer-to-peer online lending, which is a fast-lending model with no mortgage and no guarantee, has emerged [1–3]. P2P lending is regarded as a revolution in the lending market and can be regarded as an alternative to credit loans by local lending institutions [3, 4]. Compared with traditional financial institutions, the P2P network lending model faces a more serious problem of information asymmetry [2, 5]. Fully understanding borrower information and accurately judging borrower default risk are important ways to promote the sustainable and healthy development of P2P platforms.Borrowers are required to provide the information required by the P2P platform, including basic personal information, financial information, and historical lending records, when applying for loans. This is referred to as “hard information,” and “hard information” is used to grasp the borrower’s current situation and assess the borrower’s credit rating accordingly [6]. In contrast, “soft information” is the loan description that the borrower fills on his or her initiative, including the purpose of the loan, personal credit character, sources of income, to attract the lender’s investment [1, 4, 7]. At present, most scholars use “hard information” to research borrowers’ default behavior, while “soft information” is unlimited in its content [8–10]. Soft information can reduce the information asymmetry of both lenders to a certain extent [11–13]. Considering the size and speed of the global P2P loan market, even a slight improvement, such as 1%, in credit risk assessment performance may lead to a significant reduction in the losses caused by default events in the P2P loan market [14].Therefore, this paper will analyze the borrowing and loan default data of one of China’s most active P2P platforms (https://www.renrendai.com/) in depth and analyze the hidden information in the “soft information” with the borrower default behavior and the relationships between the designed variables to excavate the hidden “soft information” to effectively alleviate the information asymmetry between lenders and borrowers. Our results show that in-depth analysis of loan description information will help to reduce loan default risk. The main contributions of this paper are as follows: (a) considering P2P platforms in China, this paper supplements the influence of text length on the default risk in Chinese P2P platforms and (b) the paper provides a new test to assess whether the urgency of the borrower affects the probability of default.The remainder of this paper is organized as follows: Section2 provides a literature review, and Section 3 introduces the relevant technologies. Section 4 presents the data and relevant assumptions, and Section 5 is the model building and empirical analysis used to explore the importance of the influencing factors of default. The conclusion and future research direction are given in Section 6.


## 2. Literature Review

P2P online lending is a non-face-to-face online transaction mode, and the borrowers’ information is provided voluntarily by the borrowers. The problem of information asymmetry between lenders and borrowers is prominent and is very likely to lead to default [15]. Most P2P loan platforms are concentrated in developed financial markets. Different from the third-party credit system certification in developed countries, P2P platforms in China need to evaluate borrowers’ credit conditions by themselves [3]. At present, empirical research on P2P platform default mainly focuses on the influencing factors of borrower default risk [16] and quantitative research [17]. Stiglitz and Weiss first confirmed in 1981 that information asymmetry and imperfection in the credit market would greatly reduce the efficiency and capital liquidity of the credit market [18]. Shen found that a lender’s investment decision will be affected by whether a borrower has a guarantee and the social relationship [19]. Kim found through empirical analysis that the “conformity behavior” caused by information asymmetry will bring greater risks to the P2P industry [20]. Freedman found that the information asymmetry between borrowers and borrowers on online lending platforms would lead to “adverse selection” and default risk [21]. Gao states that online lending platforms should increase the information review and evaluation of social relations and the family situations of borrowers [22]. Some scholars have also achieved some interesting results from hard information and information recognition in P2P research [19, 23–25].Regarding loan description information, the focus of academic and practical circles is “soft information,” which may reduce the information asymmetry of P2P platforms [7, 12]. Klafft found that in lending and lending on P2P platforms, borrowers with higher credit ratings have lower default risk [26]. By dividing the friendship relationship into 5 grades from weak to strong, Lin finds that strengthened friendship can reduce the interest rate of loans and the default risk [1]. Other literature suggests that borrowers should increase the urgency and repayment willingness to increase the success rate of acquiring loans in the loan process [21, 25]. Pope, Yang, and Chen et al. conducted studies on gender under the condition of controlling other variables equal and found that women generally do not default [27, 28]. Relevant scholars have broadened the research scope of unstructured information using the text length of loan descriptions, loan purposes and uses, repayment intentions, and other information [28–31].However, the authenticity and reliability of P2P loan descriptions have not been assessed by authoritative institutions [32], and it is insufficient to study loan descriptions only at the content level. For P2P lending platforms in China, borrowers usually provide the purpose of the loan, express the urgency of acquiring the loan, and describe their repayment intentions in the loan application. Therefore, to test the influence of Chinese text length, loan purpose, repayment intention, and other information provided by the borrower on the probability of default, text analysis and the binary logistic regression were integrated to explore the relationship between loan description information and the influencing factors of default.


## 3. Technology and Methodology

### 3.1. LDA Topic Model

Latent Dirichlet Allocation (LDA) is a model in which each word in an article selects a topic with a certain probability and selects a word from this topic [33, 34]. This is also known as a three-tier Bayesian probability model, and it contains a three-tier structure of words, topics, and documents. The so-called generation model means that each word in an article is obtained through the process of “selecting a topic with a certain probability and selecting a word from this topic with a certain probability” [34, 35]. The main idea of the document-to-topic model obeying a polynomial distribution is to simulate the document generation process, according to the prior distribution and continuous iteration, calculate the model parameters and a posteriori distribution, and finally identify the potential topic (s) of the document. The schematic diagram of the LDA topic model document generation is as follows.As Figure1, the steps to generate the LDA topic model are as follows.Figure 1
Schematic diagram of LDA topic model document generation.Assume that a document (di) is first selected according to prior probability (pdi):(1)
Extract the topic distribution (θm⟶) of the generated document (di) from the Dirichlet distribution (α⟶)(2)
Sample the polynomial distribution (θm⟶) of the topic generates topic Zm,n of the nth word of the document (m)(3)
Sample the Dirichlet distribution (β⟶) to generate the word distribution (φk⟶) corresponding to topic Zm,n(4)
Sample the wordωm,n from the polynomial distribution φk⟶By repeating the above steps, a document containingNm words is generated, where α⟶ is the parameter of the document-topic distribution, β⟶ is the parameter of the topic-word distribution, and θm⟶ is a polynomial sampled from α⟶. The main task of the LDA algorithm is to estimate the value of S. Because the Gibbs sampling method is relatively simple and easy to implement [36], with high accuracy and easy code implementation, this paper uses this method to calculate θm⟶. The LDA topic model is expressed as follows:(1)pωm|di=∏m=1M∑k=1Kpωm|Zk⋅pZk|di,where pZk|di is the posterior probability of the model solution.


### 3.2. Text Sentiment Analysis Technology

This paper attempts to analyze the borrowers’ urgency in the loan description by using sentiment analysis technology. This method mainly matches the words in the text with the established sentiment dictionary after word segmentation and calculates the text sentiment score according to the matching results [37–39]. The construction of the emotional dictionary includes the following parts: the construction of emotional words, the construction of degree adverbs, the construction of negative words, and the construction of domain words. The HowNet emotion dictionary is a commonly used Chinese emotion dictionary at present. After the construction of the emotion dictionary, the text segmentation results are matched with the dictionary, and each entry in the dictionary is given a preset weight according to the matching results [40]. The score of the entire text is accumulated through the matching results, and the score of the overall text emotion tendency is obtained.The core of the emotional analysis of loan urgency based on a dictionary is to construct a dictionary of urgency. This paper establishes a dictionary of urgency by referring to the HowNet emotion dictionary and combining it with the example of a real loan description. The score of each word comes from the urgency of the vocabulary expression. The greater the value is, the stronger the sense of urgency. According to HowNet, the degree adverbs of “extremely” and “most” are assigned a weight of 5, “ordinary” and “pretty” are assigned a weight of 4, “very” is assigned a weight of 3, and “a little” is assigned a weight of 2. The urgency dictionary obtained is shown in Table1.Table 1
Urgency dictionary.
VocabularyScoreUrgency vocabularyShort-term, near term0.2In short supply, strain0.5It is urgent, urgent1Try, have a try−0.5The cumulative credit−1Degree adverbsSomewhat, compare2Very3Completely4Extremely, the most5The final urgency score is calculated by the following formula:(2)grade=∑adv⋅adj,where adv is a degree adverb and adj is an urgency word. The urgency score is equal to the urgency word score in the loan description multiplied by the degree adverb score before the word. For example, take the following sentence: “recently started a business, capital investment is large, capital is relatively short, is expected to start 1 year return income, absolutely guaranteed!” In this sentence, the urgency words are “recently” and “in short supply,” and the degree adverb is “compared”; therefore, the degree of urgency is calculated as Grade=0.2×1+0.5×2=1.2.


### 3.3. Logistic Regression Model

The P2P repayment result of the borrower in is a binary problem (default and nondefault). The logistic regression model, due to its simple structure and strong interpretability [41], is used in this paper to analyze all possible factors. In the face of dichotomous problems, a logical regression maps the linear regression results between 0 and 1 through a function. The form of the function [42, 43] is as follows:(3)fx=11+e−gx.The ratio of occurrence to nonoccurrence of an event is the ratio of occurrence of an event, denoted as odds:(4)odds=py=1|xpy=0|x=p1−p=1/1+e−gx1/1+egx=egx.Take the logarithm of the above expression:(5)lnodds=lnp1−p=C+β1⋅x1+β2⋅x2+⋯+ε,where β is an n×1 vector, corresponding to different explanatory independent variables of the coefficient vectors.


## 3.1. LDA Topic Model

Latent Dirichlet Allocation (LDA) is a model in which each word in an article selects a topic with a certain probability and selects a word from this topic [33, 34]. This is also known as a three-tier Bayesian probability model, and it contains a three-tier structure of words, topics, and documents. The so-called generation model means that each word in an article is obtained through the process of “selecting a topic with a certain probability and selecting a word from this topic with a certain probability” [34, 35]. The main idea of the document-to-topic model obeying a polynomial distribution is to simulate the document generation process, according to the prior distribution and continuous iteration, calculate the model parameters and a posteriori distribution, and finally identify the potential topic (s) of the document. The schematic diagram of the LDA topic model document generation is as follows.As Figure1, the steps to generate the LDA topic model are as follows.Figure 1
Schematic diagram of LDA topic model document generation.Assume that a document (di) is first selected according to prior probability (pdi):(1)
Extract the topic distribution (θm⟶) of the generated document (di) from the Dirichlet distribution (α⟶)(2)
Sample the polynomial distribution (θm⟶) of the topic generates topic Zm,n of the nth word of the document (m)(3)
Sample the Dirichlet distribution (β⟶) to generate the word distribution (φk⟶) corresponding to topic Zm,n(4)
Sample the wordωm,n from the polynomial distribution φk⟶By repeating the above steps, a document containingNm words is generated, where α⟶ is the parameter of the document-topic distribution, β⟶ is the parameter of the topic-word distribution, and θm⟶ is a polynomial sampled from α⟶. The main task of the LDA algorithm is to estimate the value of S. Because the Gibbs sampling method is relatively simple and easy to implement [36], with high accuracy and easy code implementation, this paper uses this method to calculate θm⟶. The LDA topic model is expressed as follows:(1)pωm|di=∏m=1M∑k=1Kpωm|Zk⋅pZk|di,where pZk|di is the posterior probability of the model solution.


## 3.2. Text Sentiment Analysis Technology

This paper attempts to analyze the borrowers’ urgency in the loan description by using sentiment analysis technology. This method mainly matches the words in the text with the established sentiment dictionary after word segmentation and calculates the text sentiment score according to the matching results [37–39]. The construction of the emotional dictionary includes the following parts: the construction of emotional words, the construction of degree adverbs, the construction of negative words, and the construction of domain words. The HowNet emotion dictionary is a commonly used Chinese emotion dictionary at present. After the construction of the emotion dictionary, the text segmentation results are matched with the dictionary, and each entry in the dictionary is given a preset weight according to the matching results [40]. The score of the entire text is accumulated through the matching results, and the score of the overall text emotion tendency is obtained.The core of the emotional analysis of loan urgency based on a dictionary is to construct a dictionary of urgency. This paper establishes a dictionary of urgency by referring to the HowNet emotion dictionary and combining it with the example of a real loan description. The score of each word comes from the urgency of the vocabulary expression. The greater the value is, the stronger the sense of urgency. According to HowNet, the degree adverbs of “extremely” and “most” are assigned a weight of 5, “ordinary” and “pretty” are assigned a weight of 4, “very” is assigned a weight of 3, and “a little” is assigned a weight of 2. The urgency dictionary obtained is shown in Table1.Table 1
Urgency dictionary.
VocabularyScoreUrgency vocabularyShort-term, near term0.2In short supply, strain0.5It is urgent, urgent1Try, have a try−0.5The cumulative credit−1Degree adverbsSomewhat, compare2Very3Completely4Extremely, the most5The final urgency score is calculated by the following formula:(2)grade=∑adv⋅adj,where adv is a degree adverb and adj is an urgency word. The urgency score is equal to the urgency word score in the loan description multiplied by the degree adverb score before the word. For example, take the following sentence: “recently started a business, capital investment is large, capital is relatively short, is expected to start 1 year return income, absolutely guaranteed!” In this sentence, the urgency words are “recently” and “in short supply,” and the degree adverb is “compared”; therefore, the degree of urgency is calculated as Grade=0.2×1+0.5×2=1.2.


## 3.3. Logistic Regression Model

The P2P repayment result of the borrower in is a binary problem (default and nondefault). The logistic regression model, due to its simple structure and strong interpretability [41], is used in this paper to analyze all possible factors. In the face of dichotomous problems, a logical regression maps the linear regression results between 0 and 1 through a function. The form of the function [42, 43] is as follows:(3)fx=11+e−gx.The ratio of occurrence to nonoccurrence of an event is the ratio of occurrence of an event, denoted as odds:(4)odds=py=1|xpy=0|x=p1−p=1/1+e−gx1/1+egx=egx.Take the logarithm of the above expression:(5)lnodds=lnp1−p=C+β1⋅x1+β2⋅x2+⋯+ε,where β is an n×1 vector, corresponding to different explanatory independent variables of the coefficient vectors.


## 4. Data and Hypothesis

### 4.1. Data

This paper focuses on the Renrendai loan platform, especially credit certification loan applications. Renrendai was founded in October 2010. After 10 years of development, Renrendai’s business has covered more than 30 provinces in China. Renrendai has become an industry leader and one of China’s top 100 Internet enterprises due to its leading levels in the industry in terms of user scale, transaction volume, and social evaluation. According to the data, the period between 2014 and 2017 saw the largest number of defaults and loan defaults. Using the BeautifulSoup4 library in Python, data crawling is conducted on the web page information of the Renrendai platform. This paper studies the default situation of loan projects. In total, 45,292 pieces of data from April 2014 to October 2016 are obtained by crawling the web page data, and the data are processed as follows:(a)
Only the most recent loan item for the same borrower is retained(b)
Loan items that are still being paid are excluded(c)
The variables that do not influence the borrower’s repayment situation, such as the borrower’s nickname and other information, are excludedFinally, a total of 4,073 completed loan projects were sorted out, among which 1,556 were overdue, accounting for 38.2%, and 2,517 were not overdue, accounting for 62%. Among the variables, “hard information” variables mainly include “personal information,” “borrowing information,” “property information,” and “credit information.” “Personal information” mainly includes demographic information, such as age, sex, marriage, and education. “Loan information” includes the amount, interest rate, description, and term of the loan provided by the borrower on the platform. “Property information” is the borrower’s income, real estate, mortgage, vehicle production, and car loans. “Credit Information” includes the number of successful loans, overdue loans, and credit rating of the borrower.


### 4.2. Text Mining and Hypothesis

#### 4.2.1. Text Features

Text features mainly describe text feature information from the text length of loan descriptions. By analyzing English text, Gao concluded that the longer the loan description text is, the less readable the text will be, which will increase the possibility of default [44]. After analyzing Chinese text, Li concluded that the longer the loan description text is, the smaller the possibility of default risk is [29]. However, this paper believes that the loan description impacts default risk, and the loan description has no restriction on content and number of words; therefore, the effect of text length on the identification of borrower default risk is uncertain. Therefore, this paper proposes verifying Hypothesis 1:H1: there is a significant correlation between the length of the loan description text and the default risk level of the borrowerIn this paper, using Python to call the string module to calculate the text length found that the incorrect use of punctuation marks in the loan description would affect the overall length of the text. Therefore, the influence of punctuation marks was removed, and the partial results are shown in Table2.Table 2
Loan description text length value table.
Loan description (in Chinese)The length of the text(1) This loan is to be used for the new decoration of an old house and the purchase of furniture and electrical appliances. I am now working in a private enterprise as the manager of the administration department. I have been working for four and a half years. My job is stable and I have sufficient repayment ability. I have a good credit record, the use of a 22,000 yuan credit card for nearly 4 years with good credit, consistent on time repayments, and have no overdue payments!84 (in Chinese)(2) My house needs to be renovated and I am in urgent need of 100,000 yuan for the renovation.18 (in Chinese)The statistical calculations of the text length of a successful loan description (Table3) show that the average text length is 42.2, the maximum length is 420, the minimum length is only 4, and the standard deviation is approximately 39.5. These results indicate that there are significant differences in the length of the text of the personal information disclosed by active borrowers: some people will be more inclined to disclose more, and some will make few expressions. The differences shown by the above borrowers also indicate that the study of text length has certain practical significance.Table 3
Loan description text length statistics.
VarSamplesMaxMinAverageStdLength4073420442.239.5


#### 4.2.2. Text Content Features

A loan is described as unstructured content and disclosed entirely according to the borrower’s own will. However, in order to successfully acquire a loan, the borrower will generally explain the purpose the loan, their monthly income, and other repayment ability information to express his repayment ability, repayment willingness, and verbal commitment [45, 46]. Therefore, this paper will conduct hypothesis verification research on borrowers’ default risk according to loan purpose, repayment willingness, and repayment ability:(1)
Loan purpose recognition is as follows: the borrower is usually described in loans and describes the purpose for the loan, which may generally be used for investment, buying a car, decoration, and so on. Furthermore, different borrowing purposes mean different investments, such as borrowing for investment compared with short-term turnover for people. The former risk is significantly larger and has higher default risk. Therefore, this paper proposes verifying Hypothesis 2:H2: loan purposes have a significant impact on default risk, and different loan purposes have different default risks.In this paper, the LDA model is used to identify the loan purpose. Before the LDA model algorithm is used, the jieba word segmentation method in Python will be used to construct a custom dictionary. In order to prevent the professional domain vocabulary from being segmented, this paper will add some custom words, such as “credit record, repayment ability,” and so on; eliminate the deactivation words; and delete punctuation marks, auxiliary words, prepositions, and other meaningless words. The results of the LDA subject model analysis of the loan description are shown in Table4.According to the LDA topic model, the keyword extraction shows that decoration loans account for 33%, the entrepreneurship investments account for 29%, short-term loans account for 20%, and personal consumption and car loans account for 10% and 8%, respectively. This reflects that P2P network loans are favored by individuals and small- and medium-sized enterprises.(2)
Information identification of repayment ability and repayment willingness is as follows: usually in addition to describing the purpose of a loan in the loan description, the borrower will also take the initiative to describe their repayment ability and repayment willingness to make the lender better understand the other party’s information. The borrower’s repayment ability and repayment willingness are two major factors that cause default risk [8]. Therefore, this paper proposes Hypotheses 3 and 4:H3: the repayment ability information provided by the borrower regarding its initiative has a significant impact on default risk.H4: the borrower’s willingness to provide repayment information has a significant impact on default risk.Table 4
LDA topic model analysis results table.
NThemeMeaningShare (%)1Short-term, insufficient funds, capital turnoverShort-term working202Start a business, expand, store, open, prepare goodsInvestment293Decoration, new house, home renovationDecoration loan334Change a car, buy a carCar loan85Daily, living, credit, improvementPersonal consumption10In this paper, the keyword matching method is mainly used to mine the loan description to supplement the information on repayment ability and willingness to repay. For example, the supplement to the repayment capacity mainly depends on whether the loan description refers to the unit of work, monthly income or annual income, and other information. The supplement to the willingness to repay mainly depends on whether the credit situation, historical credit record, and other information are mentioned in the loan description. The value of this variable is 1 if the loan description mentions the above and 0 if not. Table5 provides the specific values.Table 5
Examples of repayment ability and repayment willingness information mining.
Loan descriptionKeywordsValueAbilityWillingAbilityWilling(1) Short-term capital turnover is in short supply, so I hope to seek relevant help through your platform. I have no bad credit and bank loans, and I hope you can approve. Thank you very much!—No bad credit01(2) I have understood the borrowing process. Since I need capital turnover, I seek to raise money through the renrendai platform.——00(3) I request a loan of 68,000 yuan for house renovations. I work in an enterprise with an annual income of 80,000 yuan.Annual income 80,000 yuan—10(4) I have a fixed working position with a minimum monthly income of more than 4,500. I have a house and a car.The minimum monthly income of railway workers is over 4500Credit is good11The final statistical results of the text mining of the repayment ability and repayment intention in all loan descriptions are shown in Table6. The results showed that 68% of people choose to supplement their ability to repay information to show their financial situation to the lender. A total of 49% of borrowers added a personal repayment intention to the loan description to show their credit to the lender. In summary, the information supplement of repayment ability and repayment intention is for the borrower to show that his personal default risk is small. However, based on the unverified and active disclosure of information, whether it can play a role in reducing the default risk still needs to be further verified.Table 6
Repayment ability and repayment information supplement.
Repayment ability information supplementRepayment intention information addedDid not showShowDid not showShowN13119275420861987Share32%68%51%49%


#### 4.2.3. Emotional Features of Text

Classical sentiment analysis mainly analyzes the degree of positive (negative) emotion expressed by the text. An example is whether the public expressed positive or negative emotions regarding hot events on Facebook. In addition, it can be used to analyze the product evaluation of an e-commerce platform, whether the user’s attitude towards the product is that the product is excellent quality and reasonably price or whether the user recommends buying it; therefore, generally it is mainly to judge whether the emotion is positive or negative [47]. However, the loan description is not a comment on other events or items but a restatement of the loan situation. There is no positive or negative emotion. The assessment of the loan description found that some borrowers express urgent loan demands while some do not express urgent loan demands. Examples include the following two loan descriptions:(a)
Due to my marriage, my house needs to be renovated, and I am in urgent need of money. Now I have a stable job and can make the repayment in time. Please approve. (b) I am a teacher with a fixed income, and now I want to buy a car and have some capital turnover.In (a), the borrower expressed a significantly higher urgency of borrowing than (b). This paper believes that borrowers who express urgent borrowing needs for small loans should belong to the group with weak resistance to financial risks.Therefore, the following hypothesis is proposed:H5: the higher the urgency of borrowing expressed by the borrower in the loan description, the higher the default risk.Based on the text sentiment analysis technology and urgency dictionary in Section3.2, the urgency scores of all samples are calculated, as shown in Table 7. As seen from the following table, the maximum urgency score is 2, and the minimum is −0.5. As some users’ loans are only used to accumulate credit and acquire online loans, loans are not urgent, so the scores may be less than zero. The mean urgency score is 0.04, which indicates that the average urgency of all users is not very high, but the standard deviation is too large, indicating that there is a great difference in the urgency of borrowing expressed among users.Table 7
Urgency scores of loan descriptions.
VarSampleMaxMinAverStdGrade40732.0−0.50.040.1


## 4.1. Data

This paper focuses on the Renrendai loan platform, especially credit certification loan applications. Renrendai was founded in October 2010. After 10 years of development, Renrendai’s business has covered more than 30 provinces in China. Renrendai has become an industry leader and one of China’s top 100 Internet enterprises due to its leading levels in the industry in terms of user scale, transaction volume, and social evaluation. According to the data, the period between 2014 and 2017 saw the largest number of defaults and loan defaults. Using the BeautifulSoup4 library in Python, data crawling is conducted on the web page information of the Renrendai platform. This paper studies the default situation of loan projects. In total, 45,292 pieces of data from April 2014 to October 2016 are obtained by crawling the web page data, and the data are processed as follows:(a)
Only the most recent loan item for the same borrower is retained(b)
Loan items that are still being paid are excluded(c)
The variables that do not influence the borrower’s repayment situation, such as the borrower’s nickname and other information, are excludedFinally, a total of 4,073 completed loan projects were sorted out, among which 1,556 were overdue, accounting for 38.2%, and 2,517 were not overdue, accounting for 62%. Among the variables, “hard information” variables mainly include “personal information,” “borrowing information,” “property information,” and “credit information.” “Personal information” mainly includes demographic information, such as age, sex, marriage, and education. “Loan information” includes the amount, interest rate, description, and term of the loan provided by the borrower on the platform. “Property information” is the borrower’s income, real estate, mortgage, vehicle production, and car loans. “Credit Information” includes the number of successful loans, overdue loans, and credit rating of the borrower.


## 4.2. Text Mining and Hypothesis

### 4.2.1. Text Features

Text features mainly describe text feature information from the text length of loan descriptions. By analyzing English text, Gao concluded that the longer the loan description text is, the less readable the text will be, which will increase the possibility of default [44]. After analyzing Chinese text, Li concluded that the longer the loan description text is, the smaller the possibility of default risk is [29]. However, this paper believes that the loan description impacts default risk, and the loan description has no restriction on content and number of words; therefore, the effect of text length on the identification of borrower default risk is uncertain. Therefore, this paper proposes verifying Hypothesis 1:H1: there is a significant correlation between the length of the loan description text and the default risk level of the borrowerIn this paper, using Python to call the string module to calculate the text length found that the incorrect use of punctuation marks in the loan description would affect the overall length of the text. Therefore, the influence of punctuation marks was removed, and the partial results are shown in Table2.Table 2
Loan description text length value table.
Loan description (in Chinese)The length of the text(1) This loan is to be used for the new decoration of an old house and the purchase of furniture and electrical appliances. I am now working in a private enterprise as the manager of the administration department. I have been working for four and a half years. My job is stable and I have sufficient repayment ability. I have a good credit record, the use of a 22,000 yuan credit card for nearly 4 years with good credit, consistent on time repayments, and have no overdue payments!84 (in Chinese)(2) My house needs to be renovated and I am in urgent need of 100,000 yuan for the renovation.18 (in Chinese)The statistical calculations of the text length of a successful loan description (Table3) show that the average text length is 42.2, the maximum length is 420, the minimum length is only 4, and the standard deviation is approximately 39.5. These results indicate that there are significant differences in the length of the text of the personal information disclosed by active borrowers: some people will be more inclined to disclose more, and some will make few expressions. The differences shown by the above borrowers also indicate that the study of text length has certain practical significance.Table 3
Loan description text length statistics.
VarSamplesMaxMinAverageStdLength4073420442.239.5


### 4.2.2. Text Content Features

A loan is described as unstructured content and disclosed entirely according to the borrower’s own will. However, in order to successfully acquire a loan, the borrower will generally explain the purpose the loan, their monthly income, and other repayment ability information to express his repayment ability, repayment willingness, and verbal commitment [45, 46]. Therefore, this paper will conduct hypothesis verification research on borrowers’ default risk according to loan purpose, repayment willingness, and repayment ability:(1)
Loan purpose recognition is as follows: the borrower is usually described in loans and describes the purpose for the loan, which may generally be used for investment, buying a car, decoration, and so on. Furthermore, different borrowing purposes mean different investments, such as borrowing for investment compared with short-term turnover for people. The former risk is significantly larger and has higher default risk. Therefore, this paper proposes verifying Hypothesis 2:H2: loan purposes have a significant impact on default risk, and different loan purposes have different default risks.In this paper, the LDA model is used to identify the loan purpose. Before the LDA model algorithm is used, the jieba word segmentation method in Python will be used to construct a custom dictionary. In order to prevent the professional domain vocabulary from being segmented, this paper will add some custom words, such as “credit record, repayment ability,” and so on; eliminate the deactivation words; and delete punctuation marks, auxiliary words, prepositions, and other meaningless words. The results of the LDA subject model analysis of the loan description are shown in Table4.According to the LDA topic model, the keyword extraction shows that decoration loans account for 33%, the entrepreneurship investments account for 29%, short-term loans account for 20%, and personal consumption and car loans account for 10% and 8%, respectively. This reflects that P2P network loans are favored by individuals and small- and medium-sized enterprises.(2)
Information identification of repayment ability and repayment willingness is as follows: usually in addition to describing the purpose of a loan in the loan description, the borrower will also take the initiative to describe their repayment ability and repayment willingness to make the lender better understand the other party’s information. The borrower’s repayment ability and repayment willingness are two major factors that cause default risk [8]. Therefore, this paper proposes Hypotheses 3 and 4:H3: the repayment ability information provided by the borrower regarding its initiative has a significant impact on default risk.H4: the borrower’s willingness to provide repayment information has a significant impact on default risk.Table 4
LDA topic model analysis results table.
NThemeMeaningShare (%)1Short-term, insufficient funds, capital turnoverShort-term working202Start a business, expand, store, open, prepare goodsInvestment293Decoration, new house, home renovationDecoration loan334Change a car, buy a carCar loan85Daily, living, credit, improvementPersonal consumption10In this paper, the keyword matching method is mainly used to mine the loan description to supplement the information on repayment ability and willingness to repay. For example, the supplement to the repayment capacity mainly depends on whether the loan description refers to the unit of work, monthly income or annual income, and other information. The supplement to the willingness to repay mainly depends on whether the credit situation, historical credit record, and other information are mentioned in the loan description. The value of this variable is 1 if the loan description mentions the above and 0 if not. Table5 provides the specific values.Table 5
Examples of repayment ability and repayment willingness information mining.
Loan descriptionKeywordsValueAbilityWillingAbilityWilling(1) Short-term capital turnover is in short supply, so I hope to seek relevant help through your platform. I have no bad credit and bank loans, and I hope you can approve. Thank you very much!—No bad credit01(2) I have understood the borrowing process. Since I need capital turnover, I seek to raise money through the renrendai platform.——00(3) I request a loan of 68,000 yuan for house renovations. I work in an enterprise with an annual income of 80,000 yuan.Annual income 80,000 yuan—10(4) I have a fixed working position with a minimum monthly income of more than 4,500. I have a house and a car.The minimum monthly income of railway workers is over 4500Credit is good11The final statistical results of the text mining of the repayment ability and repayment intention in all loan descriptions are shown in Table6. The results showed that 68% of people choose to supplement their ability to repay information to show their financial situation to the lender. A total of 49% of borrowers added a personal repayment intention to the loan description to show their credit to the lender. In summary, the information supplement of repayment ability and repayment intention is for the borrower to show that his personal default risk is small. However, based on the unverified and active disclosure of information, whether it can play a role in reducing the default risk still needs to be further verified.Table 6
Repayment ability and repayment information supplement.
Repayment ability information supplementRepayment intention information addedDid not showShowDid not showShowN13119275420861987Share32%68%51%49%


### 4.2.3. Emotional Features of Text

Classical sentiment analysis mainly analyzes the degree of positive (negative) emotion expressed by the text. An example is whether the public expressed positive or negative emotions regarding hot events on Facebook. In addition, it can be used to analyze the product evaluation of an e-commerce platform, whether the user’s attitude towards the product is that the product is excellent quality and reasonably price or whether the user recommends buying it; therefore, generally it is mainly to judge whether the emotion is positive or negative [47]. However, the loan description is not a comment on other events or items but a restatement of the loan situation. There is no positive or negative emotion. The assessment of the loan description found that some borrowers express urgent loan demands while some do not express urgent loan demands. Examples include the following two loan descriptions:(a)
Due to my marriage, my house needs to be renovated, and I am in urgent need of money. Now I have a stable job and can make the repayment in time. Please approve. (b) I am a teacher with a fixed income, and now I want to buy a car and have some capital turnover.In (a), the borrower expressed a significantly higher urgency of borrowing than (b). This paper believes that borrowers who express urgent borrowing needs for small loans should belong to the group with weak resistance to financial risks.Therefore, the following hypothesis is proposed:H5: the higher the urgency of borrowing expressed by the borrower in the loan description, the higher the default risk.Based on the text sentiment analysis technology and urgency dictionary in Section3.2, the urgency scores of all samples are calculated, as shown in Table 7. As seen from the following table, the maximum urgency score is 2, and the minimum is −0.5. As some users’ loans are only used to accumulate credit and acquire online loans, loans are not urgent, so the scores may be less than zero. The mean urgency score is 0.04, which indicates that the average urgency of all users is not very high, but the standard deviation is too large, indicating that there is a great difference in the urgency of borrowing expressed among users.Table 7
Urgency scores of loan descriptions.
VarSampleMaxMinAverStdGrade40732.0−0.50.040.1


## 4.2.1. Text Features

Text features mainly describe text feature information from the text length of loan descriptions. By analyzing English text, Gao concluded that the longer the loan description text is, the less readable the text will be, which will increase the possibility of default [44]. After analyzing Chinese text, Li concluded that the longer the loan description text is, the smaller the possibility of default risk is [29]. However, this paper believes that the loan description impacts default risk, and the loan description has no restriction on content and number of words; therefore, the effect of text length on the identification of borrower default risk is uncertain. Therefore, this paper proposes verifying Hypothesis 1:H1: there is a significant correlation between the length of the loan description text and the default risk level of the borrowerIn this paper, using Python to call the string module to calculate the text length found that the incorrect use of punctuation marks in the loan description would affect the overall length of the text. Therefore, the influence of punctuation marks was removed, and the partial results are shown in Table2.Table 2
Loan description text length value table.
Loan description (in Chinese)The length of the text(1) This loan is to be used for the new decoration of an old house and the purchase of furniture and electrical appliances. I am now working in a private enterprise as the manager of the administration department. I have been working for four and a half years. My job is stable and I have sufficient repayment ability. I have a good credit record, the use of a 22,000 yuan credit card for nearly 4 years with good credit, consistent on time repayments, and have no overdue payments!84 (in Chinese)(2) My house needs to be renovated and I am in urgent need of 100,000 yuan for the renovation.18 (in Chinese)The statistical calculations of the text length of a successful loan description (Table3) show that the average text length is 42.2, the maximum length is 420, the minimum length is only 4, and the standard deviation is approximately 39.5. These results indicate that there are significant differences in the length of the text of the personal information disclosed by active borrowers: some people will be more inclined to disclose more, and some will make few expressions. The differences shown by the above borrowers also indicate that the study of text length has certain practical significance.Table 3
Loan description text length statistics.
VarSamplesMaxMinAverageStdLength4073420442.239.5


## 4.2.2. Text Content Features

A loan is described as unstructured content and disclosed entirely according to the borrower’s own will. However, in order to successfully acquire a loan, the borrower will generally explain the purpose the loan, their monthly income, and other repayment ability information to express his repayment ability, repayment willingness, and verbal commitment [45, 46]. Therefore, this paper will conduct hypothesis verification research on borrowers’ default risk according to loan purpose, repayment willingness, and repayment ability:(1)
Loan purpose recognition is as follows: the borrower is usually described in loans and describes the purpose for the loan, which may generally be used for investment, buying a car, decoration, and so on. Furthermore, different borrowing purposes mean different investments, such as borrowing for investment compared with short-term turnover for people. The former risk is significantly larger and has higher default risk. Therefore, this paper proposes verifying Hypothesis 2:H2: loan purposes have a significant impact on default risk, and different loan purposes have different default risks.In this paper, the LDA model is used to identify the loan purpose. Before the LDA model algorithm is used, the jieba word segmentation method in Python will be used to construct a custom dictionary. In order to prevent the professional domain vocabulary from being segmented, this paper will add some custom words, such as “credit record, repayment ability,” and so on; eliminate the deactivation words; and delete punctuation marks, auxiliary words, prepositions, and other meaningless words. The results of the LDA subject model analysis of the loan description are shown in Table4.According to the LDA topic model, the keyword extraction shows that decoration loans account for 33%, the entrepreneurship investments account for 29%, short-term loans account for 20%, and personal consumption and car loans account for 10% and 8%, respectively. This reflects that P2P network loans are favored by individuals and small- and medium-sized enterprises.(2)
Information identification of repayment ability and repayment willingness is as follows: usually in addition to describing the purpose of a loan in the loan description, the borrower will also take the initiative to describe their repayment ability and repayment willingness to make the lender better understand the other party’s information. The borrower’s repayment ability and repayment willingness are two major factors that cause default risk [8]. Therefore, this paper proposes Hypotheses 3 and 4:H3: the repayment ability information provided by the borrower regarding its initiative has a significant impact on default risk.H4: the borrower’s willingness to provide repayment information has a significant impact on default risk.Table 4
LDA topic model analysis results table.
NThemeMeaningShare (%)1Short-term, insufficient funds, capital turnoverShort-term working202Start a business, expand, store, open, prepare goodsInvestment293Decoration, new house, home renovationDecoration loan334Change a car, buy a carCar loan85Daily, living, credit, improvementPersonal consumption10In this paper, the keyword matching method is mainly used to mine the loan description to supplement the information on repayment ability and willingness to repay. For example, the supplement to the repayment capacity mainly depends on whether the loan description refers to the unit of work, monthly income or annual income, and other information. The supplement to the willingness to repay mainly depends on whether the credit situation, historical credit record, and other information are mentioned in the loan description. The value of this variable is 1 if the loan description mentions the above and 0 if not. Table5 provides the specific values.Table 5
Examples of repayment ability and repayment willingness information mining.
Loan descriptionKeywordsValueAbilityWillingAbilityWilling(1) Short-term capital turnover is in short supply, so I hope to seek relevant help through your platform. I have no bad credit and bank loans, and I hope you can approve. Thank you very much!—No bad credit01(2) I have understood the borrowing process. Since I need capital turnover, I seek to raise money through the renrendai platform.——00(3) I request a loan of 68,000 yuan for house renovations. I work in an enterprise with an annual income of 80,000 yuan.Annual income 80,000 yuan—10(4) I have a fixed working position with a minimum monthly income of more than 4,500. I have a house and a car.The minimum monthly income of railway workers is over 4500Credit is good11The final statistical results of the text mining of the repayment ability and repayment intention in all loan descriptions are shown in Table6. The results showed that 68% of people choose to supplement their ability to repay information to show their financial situation to the lender. A total of 49% of borrowers added a personal repayment intention to the loan description to show their credit to the lender. In summary, the information supplement of repayment ability and repayment intention is for the borrower to show that his personal default risk is small. However, based on the unverified and active disclosure of information, whether it can play a role in reducing the default risk still needs to be further verified.Table 6
Repayment ability and repayment information supplement.
Repayment ability information supplementRepayment intention information addedDid not showShowDid not showShowN13119275420861987Share32%68%51%49%


## 4.2.3. Emotional Features of Text

Classical sentiment analysis mainly analyzes the degree of positive (negative) emotion expressed by the text. An example is whether the public expressed positive or negative emotions regarding hot events on Facebook. In addition, it can be used to analyze the product evaluation of an e-commerce platform, whether the user’s attitude towards the product is that the product is excellent quality and reasonably price or whether the user recommends buying it; therefore, generally it is mainly to judge whether the emotion is positive or negative [47]. However, the loan description is not a comment on other events or items but a restatement of the loan situation. There is no positive or negative emotion. The assessment of the loan description found that some borrowers express urgent loan demands while some do not express urgent loan demands. Examples include the following two loan descriptions:(a)
Due to my marriage, my house needs to be renovated, and I am in urgent need of money. Now I have a stable job and can make the repayment in time. Please approve. (b) I am a teacher with a fixed income, and now I want to buy a car and have some capital turnover.In (a), the borrower expressed a significantly higher urgency of borrowing than (b). This paper believes that borrowers who express urgent borrowing needs for small loans should belong to the group with weak resistance to financial risks.Therefore, the following hypothesis is proposed:H5: the higher the urgency of borrowing expressed by the borrower in the loan description, the higher the default risk.Based on the text sentiment analysis technology and urgency dictionary in Section3.2, the urgency scores of all samples are calculated, as shown in Table 7. As seen from the following table, the maximum urgency score is 2, and the minimum is −0.5. As some users’ loans are only used to accumulate credit and acquire online loans, loans are not urgent, so the scores may be less than zero. The mean urgency score is 0.04, which indicates that the average urgency of all users is not very high, but the standard deviation is too large, indicating that there is a great difference in the urgency of borrowing expressed among users.Table 7
Urgency scores of loan descriptions.
VarSampleMaxMinAverStdGrade40732.0−0.50.040.1


## 5. Empirical Result Analysis

### 5.1. Variable Selection

In this paper, the borrower’s failure to repay any installment on time within the specified time period is regarded as the default (DEFAULT = 1), and the borrower’s repayment of each installment on time is regarded as normal (DEFAULT = 0), whether the borrower defaults is taken as the explained variable of the model. In addition, text variables mined from the loan description are used as explanatory variables of the model, and classification variables need to be recoded before text variables are included in the model. Since text length and loan urgency are numerical variables, there is no need for coding. The loan purpose is a classified variable, which contains five types of values and is coded as a dummy variable. The supplementary variables of repayment ability and repayment intention information are dichotomous variables. If this information is included in the loan description, the value of the variable is 1; if not, the value of the variable is 0. “Hard information” variables are divided into numerical variables and subtype variables. Table8 shows the statistical results of the numerical variables.Table 8
Description statistics of numerical variables.
VarSampleMinMaxAverStdAmount (yuan)4073300030000021867.616123.8Interest (%)407392412.50.8Time (months)407333621.37.6Age4073225532.06.5Number of successful loans40731681.41.7Number of overdue loans40730367.67.6According to Table8, in terms of loan amount, the minimum loan is 3,000 yuan, the maximum loan is 300,000 yuan, and the average loan amount is approximately 22,000 yuan. In addition, the loan term is at least 3 months, the longest loan term is 36 months, and the average loan term is 21 months. The above table shows that the loan information is in line with the characteristics of short-term repayment of small loans in P2P network lending. Regarding the annual loan interest rate, the lowest interest rate is 9%, the highest interest rate is 24%, and the average annual interest rate is in the range of 12%–13%, while the general bank loan rate is 5%. This shows that the interest rate of online lending is much higher. However, considering the characteristics of the low threshold of borrowing, speed, and convenience of online lending, there is still a certain market. The age of these borrowers is 32 years old. Users in this age group belong to the main consumption force and have strong demand for funds. The number of successful loans shows that the minimum number of successful loans is 1 and the maximum number is 68. However, the average number of successful loans is 1.4, indicating that the probability of successful loans is not high. In terms of the number of overdue loans, the average number of overdue loans reached 7.6 times, and the maximum number of overdue loans was as high as 36 times. This shows that the borrowers’ overdue behaviors were relatively serious, which was also the main reason for the low average number of successful loans. Such high overdue rates are particularly noteworthy for platforms and lenders.When choosing control variables, because the platform is given credit scores that integrated the history of the borrower loan information and payment information, the borrower historical loan information will not be included as a control variable. Therefore, this article selects the loan amount, the loan interest rate, the loan term, and the borrowers’ credit scores, gender, age, education, and income as the main variables assessing the borrowers’ default risk as control variables. The above variables are summarized as Table9.Table 9
Indicators of related variables.
VarThe variable nameSymbolInstructionThe dependent variableThe default stateDefaultDefault = 1, nondefault = 0Text varText featureLengthLengthLength of Chinese charactersContentPurposePurp1: Short-term turnover, 2: investment and entrepreneurship, 3: decoration loan, 4: car purchase loan, and 5: otherAbilityAbilityHave indicated repayment ability to repay 1; have not 0WillingWillingness1 if there is a willingness to repay, 0 if notSentimentUrgencyUrgencyUrgency scoreControl varAmount (yuan)AmountThe actual valueLoan interestInterestThe actual valueLoan termMonthThe actual valueCredit gradeGrade7: AA, 6: A, 5: B, 4: C, 3: D, 2: E, and 1: HR.AgeAgeThe actual valueEducationEdu1: high school or below, 2: junior college, 3: undergraduate, and 4: graduate or aboveSexSex1: male and 0: femaleIncomeIncome (CNY)1: [0, 2,000), 2: [2,000–5,000), 3: [5,000–20,000), 4: [20,000–50,000), and 5: [50,000–50,000+)


#### 5.1.1. Variable Correlation Test

In order to verify that the selected variables have certain explainability for the dependent variable, this paper first verifies the correlation coefficient between each independent variable and the dependent variable. As seen from Table10, the correlation coefficient between the loan rate as an independent variable and the dependent variable is not significant while the correlation coefficient between the loan rate and the loan term is 0.864, showing a significant strong correlation. This may be because the strong correlation between the two leads to a nonsignificant correlation between the loan rate and the dependent variable. Therefore, the borrowing rate will not be used as an independent variable in this paper. However, the correlation between the five text variables based on text mining and the dependent variable is significant, so the text variables are retained. In addition, the other hard information variables are significantly correlated with the dependent variables. Based on the above correlation analysis, the selection logic of text variables is reasonable, which provides a basis for the subsequent modeling preparation.Table 10
Correlation coefficient matrix of variables.
Correlation coefficientDefaultAmountMonthInterestGradeSexAgeEduIncomeLengthAbilityWillingUrgencyPurpDefault1Amount−0.050∗∗1Month−0.073∗∗0.240∗∗1Interest−0.0260.234∗∗0.864∗∗1Grade−0.181∗∗0.088∗∗−0.032∗−0.067∗∗1Sex0.043∗∗−0.053∗∗−0.050∗∗−0.048∗∗0.011Age0.032∗0.151∗∗−0.034∗−0.033∗0.065∗∗0.0191Edu−0.228∗∗0.122∗∗−0.012−0.039∗0.093∗∗-0.0230.043∗∗1Income0.055∗∗0.539∗∗0.030.038∗0.050∗∗0.0110.155∗∗0.0271Length0.318∗∗0.088∗∗−0.0180.0110.044∗∗00.048∗∗0.098∗∗0.084∗∗1Ability−0.008∗∗0.01−0.103∗∗−0.033∗−0.006−0.0150.0080.075∗∗0.0220.320∗∗1Willing−0.036∗−0.066∗∗−0.119∗∗−0.097∗∗0.045∗∗−0.003−0.020.037∗−0.056∗∗0.202∗∗0.235∗∗1Urgency0.055∗∗0.006−0.051∗∗−0.052∗∗0.033∗0.023−0.0120.071∗∗0.026−0.004−0.0240.0191Purp−0.062∗∗−0.0190.041∗∗0.0190.012−0.001−0.081∗∗0.034∗−0.064∗∗0.050∗∗−0.031∗−0.005−0.043∗∗1Note: the symbols∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.


#### 5.1.2. Characteristic Difference Test

In order to test whether there are significant differences in the explanatory variables selected in this paper between the default group and the nondefault group, this paper conducted a chi-squared test of the numerical variables and a Mann–WhitneyU test of the continuous variables. The results are shown in Table 11. The analysis of borrower characteristic differences shows that the loan interest rate variable (p=0.100>0.05) still failed the significance test while the other variables passed the significance test of characteristic differences; therefore, the variables with significant characteristic differences were retained.Table 11
Significance test of the difference between the default group and the nondefault group.
Varχ2-TestVarMann–WhitneyU Testχ2-valueProgressive significance (bilateral)Z-valueProgressive significance (bilateral)Sex7.2590.007Age−2.0140.044Edu219.8740.000Amount (yuan)−3.2000.001Income79.7280.000Interest−1.6440.100Grade153.8960.000Month−4.4890.000Purp42.5370.000Length−14.2400.000Ability0.2070.649Urgency−3.5320.000Willing5.4210.020The analysis of borrower characteristic differences shows that the loan interest rate variable (p=0.100>0.05) still failed the significance test while other variables passed the significance test of characteristic differences; therefore, the variables with significant characteristic differences were retained.


#### 5.1.3. Multicollinearity Test

Logical regression is sensitive to the multicollinearity of variables. Before establishing the model, whether there is multicollinearity among independent variables is first tested. In this paper, the variance inflation factor (VIF) is calculated to test the multicollinearity effect, and the results are shown in Table12. The collinearity rule using the VIF is that if the VIF exceeds 10, severe multicollinearity is considered. The test results (Tables 4–5) show that there is no serious multicollinearity among the above independent variables. The correlation analysis shows the rationality of the selection of independent variables, excludes the multicollinearity among variables, and prepares for the subsequent modeling analysis.Table 12
Results of the multicollinearity test among variables.
VarAmountMonthGradeAgeSexEduIncomeLengthAbilityWillingUrgentPurpVIF1.5451.0571.0281.0341.0061.0211.4961.0581.0871.061.0121.031


### 5.2. Modeling and Results

Before exploring the effect of the text variables on the default rate, this paper first verifies the effect of the control variables on the default rate. A logit regression is conducted on the control variables to verify the influence of the control variables on the occurrence of default. The model is as follows:(6)log itDefault=C+β1⋅Amounti+β2⋅Mouthi+β3⋅Agei+β4⋅Sexi+β5⋅Edui+β6⋅Incomei+β7⋅Gradei+εi.The model results are shown in Table13. We find that there is a significant positive correlation between the loan amount and borrowers’ default; that is, the higher the borrower’s total loan amount, the greater the possibility of default, which is consistent with the conclusion obtained by most scholars [30, 47]. However, there is a significant negative correlation between the loan term and borrowers’ default rate. This may be because a longer loan period results in less installment repayment pressure, so it is not easy to default. There is a significant positive correlation between age and borrower default rate. Older borrowers do not have a stable income compared with young people, so older people have a higher default risk. Regarding gender, the default risk of men is 1.242 times higher than that of women, which may be because women are usually more risk averse while most men have high-risk preferences, resulting in a high default rate among men. This is consistent with the findings of Chen and Jiang et al. [28, 46]. Regarding education, taking the highest level of “research and above” as the reference group, the probability of default for other educational levels is obviously higher. Regarding income, taking the highest income level as the reference group, it is found that the default risk of other low-income level groups is relatively smaller. Most people believe that high income corresponds to low default risk, but, in fact, when considering a person’s default risk, it is necessary to consider not only his income capacity but also his consumption capacity, economic status, and repayment willingness. The main target of P2P online lending is middle- and low-income people, so the high income status in this paper is relative. In conclusion, the high income classification in online lending may introduce a higher risk of default due to its unreasonable consumption. Regarding credit grade, taking the “HR” grade as the reference group, Grade (4) (credit Grade E), Grade (5) (credit Grade D), and Grade (6) (credit Grade C) that pass the significance test have lower probabilities of default.Table 13
Logical regression results of control variables.
Model 1VarCoefficientp valuesEXP (B)VarCoefficientp valuesEXP (B)C−0.1450.733∗0.865Income (2)−1.5650.000∗0.209Amount0.2850.007∗∗1.000Income (3)−1.4410.000∗0.237Month−0.0220.000∗∗0.978Income (4)−1.5510.000∗∗0.212Age0.0150.005∗1.015Income (5)−0.9320.000∗∗0.394Sex0.2170.028∗1.242Grade0.000Edu0.000Grade (1)1.0340.354∗2.812Edu (1)1.5390.000∗∗4.660Grade (2)−1.5660.167∗0.209Edu (2)2.0750.000∗7.965Grade (3)−0.6080.165∗∗0.544Edu (3)−0.9560.001∗2.601Grade (4)−1.1590.000∗∗0.314Income0.000Grade (5)−0.8850.000∗∗0.413Income (1)−1.1310.297∗∗0.323Grade (6)−0.2560.003∗∗∗0.774NagelkerkeR20.692N4073Note: the symbols ,∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.The above control variables were used to examine the variables’ influence on the borrower default probability using loan description text mining. To verify the above hypotheses proposed by H1 ∼ H5, the following logistic regression model including the text length, the purpose of the loan, the reimbursement ability information, willingness to reimburse, and degree of borrowing urgency was established, and the results are shown in Table14:(7)logitDefault=C+β1⋅Lengthi+β2⋅Purposei+β3⋅Abilityi+β4⋅Willingi+β5⋅Urgenti+β6⋅Controlsi+εi.(a)
In Model 2, text length was selected as the independent variable, and the others were selected as the control variables. The regression results verifiedHypothesis H1 proposed in this paper. The length of the loan description text is significantly correlated with the level of default risk of borrowers, which is consistent with the research results of Li et al. [29]. According to the negative regression coefficient, the longer the loan description text is, the lower the default risk of the borrower is. It may be that the longer the loan description is, the more abundant information the borrower provides and the more sincere their loan attitude is. Furthermore, the information is realer. For example, some borrowers will introduce their income, loan purpose, historical lending situation, and other information in detail.(b)
Model 3 is the regression results of selecting the loan purpose as the independent variable, which verifiesHypothesis H2 proposed in this paper. The loan purpose has a significant impact on default risk, and different borrowing purposes have different default risks, which is consistent with the results of Yao et al. [48]. With “personal consumption” as the reference group, “investment and entrepreneurship” (Purp (2) and “car purchase loan” (Purp (4) showed significant differences, but “short-term turnover” (Purp (1) and “decoration loan” (Purp (3) did not show significant differences with “personal consumption” in default risk.(c)
Model 4 is the regression results of choosing repayment ability as the independent variable, and Model 7 is the regression result of all text variables. Combined with the regression results of Model 4, Model 5, and Model 7, the borrower’s initiative to supplement repayment ability information and repayment willingness information is significant in Models 4 and 5 (the significance level is 5%), which verifies that the default risk is lower. However, it becomes nonsignificant in the regression of the overall text variable of Model 7, which may be caused by the mutual influence between the supplemental information of repayment ability and repayment willingness and the length of the text. This does not mean that more information on repayment ability and repayment willingness leads to lower default. Furthermore, it also indicates thatHypotheses H3 and H4 are not true.(d)
The regression results in Model 6 and Model 7 interestingly show that the higher the urgency of borrowing, the greater the default risk, thus verifyingHypothesis H5. This may be because the more urgent the borrower’s borrowing needs, the lower his ability to resist financial risks, indicating that the borrower is not reasonable in their use of funds or the borrower does not have a stable source of income, which will lead to the borrower’s failure to repay on time. Furthermore, the P2P platform adopts the mode of no mortgage and no guarantee, so the default cost of borrowers is almost zero. According to the rational assumption that everyone engaged in economic activities is self-interested, it is not difficult to understand the default situation of borrowers when the default cost is far lower than the default income.Table 14
Logical regression results of loan description text variables and overall text variables.
VarModel 2Model 3Model 4Model 5Model 6Model 7DefaultDefaultDefaultDefaultDefaultDefaultC−2.415∗∗∗−2.332∗∗∗−2.607∗∗∗−2.612−2.393∗∗∗−2.557∗∗∗(0.007)(0.708)(0.712)(0.707)(0.705)(0.726)Length−0.007∗∗∗−0.008∗∗∗(−0.001)(0.001)Ability−0.060∗∗0.06(0.074)0 (.077)Willingness−0.116∗∗−0.021(0.069)(0.071)Purp 10.1790.087(0.138)(0.235)Purp 20.472∗∗∗0.462∗∗∗(0.133)(0.135)Purp 30.278∗∗0.224∗(0.129)(0.131)Purp 40.569∗∗∗0.532∗∗∗(0.163)(0.164)Urgency0.049∗∗0.037∗∗(0.300)(0.235)ControlsYESYESYESYESYESYESNagelkerkeR20.6950.6930.6940.6960.6930.697N407340734073407340734073Note: the symbols∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.The control variable and the text variable were eliminated from Model 7, and the overall regression was conducted to obtain Model 8 (Table15). The results showed that the default probability of the borrower decreased by 0.7% with each one-unit increase of the loan description text (length) when the control variables remained unchanged. Regarding loan purposes, taking “personal consumption” as the reference, it is found that there is no significant difference between the default situations of “short-term turnover” (Purp 1) and “decoration loan” (Purp 3) compared with the reference group, but the default risk of borrowers who borrow for a “car purchase loan” (PURP 4) is 1.698 times that of the reference group. This may be because some borrowers’ demand for car purchases may be caused by vanity consumption, which increases the repayment pressure and leads to default. The default risk of PURP 2 borrowers is 1.419 times that of the reference group. Investment and entrepreneurship are high-risk and high-return behaviors. Borrowers are very likely to be influenced by their own decisions and market policies, resulting in investment losses and entrepreneurial failure and the failure to recover funds, resulting in default. The results of Model 8 again verified that the more urgent the loan is, the greater the probability of default of the borrower is. This may be caused by the borrower’s lack of a stable job or low default costs. In addition, there may be malicious nonpayment that leads to default.Table 15
Overall logistic regression results of control variables and text variables.
Model 7VarCoefficientp valuesEXP (B)VarCoefficientp valuesEXP (B)C−0.0310.9451.031Grade (1)0.9290.0002.532Amount0.2050.007∗∗1.000Grade (2)1.4560.407∗∗0.233Month−0.0240.000∗∗0.976Grade (3)0.6120.207∗∗0.542Age0.0150.005∗1.015Grade (4)−1.0990.000∗∗0.333Sex0.2220.025∗1.249Grade (5)−0.8820.000∗∗0.414Edu (1)1.4970.000∗∗4.467Grade (6)−0.2700.002∗∗∗0.764Edu (2)−2.0150.000∗∗7.504Length−0.0070.000∗∗∗0.993Edu (3)−0.9290.001∗∗∗2.533Purp (1)0.0350.807∗∗1.035Income (1)1.1520.285∗∗∗0.316Purp (2)0.3500.011∗∗1.419Income (2)1.6030.000∗∗0.201Purp (3)0.2460.063∗∗1.279Income (3)−1.4880.000∗∗0.226Purp (4)0.5300.001∗∗∗1.698Income (4)−1.5880.000∗∗0.204Urgency0.2360.000∗∗1.235Income (5)−0.9810.000∗∗∗0.375NagelkerkeR20.721N4073Note: the symbols∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.The NagelkerkeR2 in the logistic regression model ranges from 0 to 1. The greater the value is, the greater the proportion of the variation explained by the model is, and the higher the accuracy of the model prediction is. The regression results of Model 1 and Model 7 show that the Nagelkerke R2 of the model increased by nearly 3% after the text variables mined in this paper were included in the model. This shows that the text variable has a certain predictive effect on the default of the borrower and to some extent reflects that the description information of the loan can effectively reduce the information asymmetry between the lender and the borrower.


## 5.1. Variable Selection

In this paper, the borrower’s failure to repay any installment on time within the specified time period is regarded as the default (DEFAULT = 1), and the borrower’s repayment of each installment on time is regarded as normal (DEFAULT = 0), whether the borrower defaults is taken as the explained variable of the model. In addition, text variables mined from the loan description are used as explanatory variables of the model, and classification variables need to be recoded before text variables are included in the model. Since text length and loan urgency are numerical variables, there is no need for coding. The loan purpose is a classified variable, which contains five types of values and is coded as a dummy variable. The supplementary variables of repayment ability and repayment intention information are dichotomous variables. If this information is included in the loan description, the value of the variable is 1; if not, the value of the variable is 0. “Hard information” variables are divided into numerical variables and subtype variables. Table8 shows the statistical results of the numerical variables.Table 8
Description statistics of numerical variables.
VarSampleMinMaxAverStdAmount (yuan)4073300030000021867.616123.8Interest (%)407392412.50.8Time (months)407333621.37.6Age4073225532.06.5Number of successful loans40731681.41.7Number of overdue loans40730367.67.6According to Table8, in terms of loan amount, the minimum loan is 3,000 yuan, the maximum loan is 300,000 yuan, and the average loan amount is approximately 22,000 yuan. In addition, the loan term is at least 3 months, the longest loan term is 36 months, and the average loan term is 21 months. The above table shows that the loan information is in line with the characteristics of short-term repayment of small loans in P2P network lending. Regarding the annual loan interest rate, the lowest interest rate is 9%, the highest interest rate is 24%, and the average annual interest rate is in the range of 12%–13%, while the general bank loan rate is 5%. This shows that the interest rate of online lending is much higher. However, considering the characteristics of the low threshold of borrowing, speed, and convenience of online lending, there is still a certain market. The age of these borrowers is 32 years old. Users in this age group belong to the main consumption force and have strong demand for funds. The number of successful loans shows that the minimum number of successful loans is 1 and the maximum number is 68. However, the average number of successful loans is 1.4, indicating that the probability of successful loans is not high. In terms of the number of overdue loans, the average number of overdue loans reached 7.6 times, and the maximum number of overdue loans was as high as 36 times. This shows that the borrowers’ overdue behaviors were relatively serious, which was also the main reason for the low average number of successful loans. Such high overdue rates are particularly noteworthy for platforms and lenders.When choosing control variables, because the platform is given credit scores that integrated the history of the borrower loan information and payment information, the borrower historical loan information will not be included as a control variable. Therefore, this article selects the loan amount, the loan interest rate, the loan term, and the borrowers’ credit scores, gender, age, education, and income as the main variables assessing the borrowers’ default risk as control variables. The above variables are summarized as Table9.Table 9
Indicators of related variables.
VarThe variable nameSymbolInstructionThe dependent variableThe default stateDefaultDefault = 1, nondefault = 0Text varText featureLengthLengthLength of Chinese charactersContentPurposePurp1: Short-term turnover, 2: investment and entrepreneurship, 3: decoration loan, 4: car purchase loan, and 5: otherAbilityAbilityHave indicated repayment ability to repay 1; have not 0WillingWillingness1 if there is a willingness to repay, 0 if notSentimentUrgencyUrgencyUrgency scoreControl varAmount (yuan)AmountThe actual valueLoan interestInterestThe actual valueLoan termMonthThe actual valueCredit gradeGrade7: AA, 6: A, 5: B, 4: C, 3: D, 2: E, and 1: HR.AgeAgeThe actual valueEducationEdu1: high school or below, 2: junior college, 3: undergraduate, and 4: graduate or aboveSexSex1: male and 0: femaleIncomeIncome (CNY)1: [0, 2,000), 2: [2,000–5,000), 3: [5,000–20,000), 4: [20,000–50,000), and 5: [50,000–50,000+)


### 5.1.1. Variable Correlation Test

In order to verify that the selected variables have certain explainability for the dependent variable, this paper first verifies the correlation coefficient between each independent variable and the dependent variable. As seen from Table10, the correlation coefficient between the loan rate as an independent variable and the dependent variable is not significant while the correlation coefficient between the loan rate and the loan term is 0.864, showing a significant strong correlation. This may be because the strong correlation between the two leads to a nonsignificant correlation between the loan rate and the dependent variable. Therefore, the borrowing rate will not be used as an independent variable in this paper. However, the correlation between the five text variables based on text mining and the dependent variable is significant, so the text variables are retained. In addition, the other hard information variables are significantly correlated with the dependent variables. Based on the above correlation analysis, the selection logic of text variables is reasonable, which provides a basis for the subsequent modeling preparation.Table 10
Correlation coefficient matrix of variables.
Correlation coefficientDefaultAmountMonthInterestGradeSexAgeEduIncomeLengthAbilityWillingUrgencyPurpDefault1Amount−0.050∗∗1Month−0.073∗∗0.240∗∗1Interest−0.0260.234∗∗0.864∗∗1Grade−0.181∗∗0.088∗∗−0.032∗−0.067∗∗1Sex0.043∗∗−0.053∗∗−0.050∗∗−0.048∗∗0.011Age0.032∗0.151∗∗−0.034∗−0.033∗0.065∗∗0.0191Edu−0.228∗∗0.122∗∗−0.012−0.039∗0.093∗∗-0.0230.043∗∗1Income0.055∗∗0.539∗∗0.030.038∗0.050∗∗0.0110.155∗∗0.0271Length0.318∗∗0.088∗∗−0.0180.0110.044∗∗00.048∗∗0.098∗∗0.084∗∗1Ability−0.008∗∗0.01−0.103∗∗−0.033∗−0.006−0.0150.0080.075∗∗0.0220.320∗∗1Willing−0.036∗−0.066∗∗−0.119∗∗−0.097∗∗0.045∗∗−0.003−0.020.037∗−0.056∗∗0.202∗∗0.235∗∗1Urgency0.055∗∗0.006−0.051∗∗−0.052∗∗0.033∗0.023−0.0120.071∗∗0.026−0.004−0.0240.0191Purp−0.062∗∗−0.0190.041∗∗0.0190.012−0.001−0.081∗∗0.034∗−0.064∗∗0.050∗∗−0.031∗−0.005−0.043∗∗1Note: the symbols∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.


### 5.1.2. Characteristic Difference Test

In order to test whether there are significant differences in the explanatory variables selected in this paper between the default group and the nondefault group, this paper conducted a chi-squared test of the numerical variables and a Mann–WhitneyU test of the continuous variables. The results are shown in Table 11. The analysis of borrower characteristic differences shows that the loan interest rate variable (p=0.100>0.05) still failed the significance test while the other variables passed the significance test of characteristic differences; therefore, the variables with significant characteristic differences were retained.Table 11
Significance test of the difference between the default group and the nondefault group.
Varχ2-TestVarMann–WhitneyU Testχ2-valueProgressive significance (bilateral)Z-valueProgressive significance (bilateral)Sex7.2590.007Age−2.0140.044Edu219.8740.000Amount (yuan)−3.2000.001Income79.7280.000Interest−1.6440.100Grade153.8960.000Month−4.4890.000Purp42.5370.000Length−14.2400.000Ability0.2070.649Urgency−3.5320.000Willing5.4210.020The analysis of borrower characteristic differences shows that the loan interest rate variable (p=0.100>0.05) still failed the significance test while other variables passed the significance test of characteristic differences; therefore, the variables with significant characteristic differences were retained.


### 5.1.3. Multicollinearity Test

Logical regression is sensitive to the multicollinearity of variables. Before establishing the model, whether there is multicollinearity among independent variables is first tested. In this paper, the variance inflation factor (VIF) is calculated to test the multicollinearity effect, and the results are shown in Table12. The collinearity rule using the VIF is that if the VIF exceeds 10, severe multicollinearity is considered. The test results (Tables 4–5) show that there is no serious multicollinearity among the above independent variables. The correlation analysis shows the rationality of the selection of independent variables, excludes the multicollinearity among variables, and prepares for the subsequent modeling analysis.Table 12
Results of the multicollinearity test among variables.
VarAmountMonthGradeAgeSexEduIncomeLengthAbilityWillingUrgentPurpVIF1.5451.0571.0281.0341.0061.0211.4961.0581.0871.061.0121.031


## 5.1.1. Variable Correlation Test

In order to verify that the selected variables have certain explainability for the dependent variable, this paper first verifies the correlation coefficient between each independent variable and the dependent variable. As seen from Table10, the correlation coefficient between the loan rate as an independent variable and the dependent variable is not significant while the correlation coefficient between the loan rate and the loan term is 0.864, showing a significant strong correlation. This may be because the strong correlation between the two leads to a nonsignificant correlation between the loan rate and the dependent variable. Therefore, the borrowing rate will not be used as an independent variable in this paper. However, the correlation between the five text variables based on text mining and the dependent variable is significant, so the text variables are retained. In addition, the other hard information variables are significantly correlated with the dependent variables. Based on the above correlation analysis, the selection logic of text variables is reasonable, which provides a basis for the subsequent modeling preparation.Table 10
Correlation coefficient matrix of variables.
Correlation coefficientDefaultAmountMonthInterestGradeSexAgeEduIncomeLengthAbilityWillingUrgencyPurpDefault1Amount−0.050∗∗1Month−0.073∗∗0.240∗∗1Interest−0.0260.234∗∗0.864∗∗1Grade−0.181∗∗0.088∗∗−0.032∗−0.067∗∗1Sex0.043∗∗−0.053∗∗−0.050∗∗−0.048∗∗0.011Age0.032∗0.151∗∗−0.034∗−0.033∗0.065∗∗0.0191Edu−0.228∗∗0.122∗∗−0.012−0.039∗0.093∗∗-0.0230.043∗∗1Income0.055∗∗0.539∗∗0.030.038∗0.050∗∗0.0110.155∗∗0.0271Length0.318∗∗0.088∗∗−0.0180.0110.044∗∗00.048∗∗0.098∗∗0.084∗∗1Ability−0.008∗∗0.01−0.103∗∗−0.033∗−0.006−0.0150.0080.075∗∗0.0220.320∗∗1Willing−0.036∗−0.066∗∗−0.119∗∗−0.097∗∗0.045∗∗−0.003−0.020.037∗−0.056∗∗0.202∗∗0.235∗∗1Urgency0.055∗∗0.006−0.051∗∗−0.052∗∗0.033∗0.023−0.0120.071∗∗0.026−0.004−0.0240.0191Purp−0.062∗∗−0.0190.041∗∗0.0190.012−0.001−0.081∗∗0.034∗−0.064∗∗0.050∗∗−0.031∗−0.005−0.043∗∗1Note: the symbols∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.


## 5.1.2. Characteristic Difference Test

In order to test whether there are significant differences in the explanatory variables selected in this paper between the default group and the nondefault group, this paper conducted a chi-squared test of the numerical variables and a Mann–WhitneyU test of the continuous variables. The results are shown in Table 11. The analysis of borrower characteristic differences shows that the loan interest rate variable (p=0.100>0.05) still failed the significance test while the other variables passed the significance test of characteristic differences; therefore, the variables with significant characteristic differences were retained.Table 11
Significance test of the difference between the default group and the nondefault group.
Varχ2-TestVarMann–WhitneyU Testχ2-valueProgressive significance (bilateral)Z-valueProgressive significance (bilateral)Sex7.2590.007Age−2.0140.044Edu219.8740.000Amount (yuan)−3.2000.001Income79.7280.000Interest−1.6440.100Grade153.8960.000Month−4.4890.000Purp42.5370.000Length−14.2400.000Ability0.2070.649Urgency−3.5320.000Willing5.4210.020The analysis of borrower characteristic differences shows that the loan interest rate variable (p=0.100>0.05) still failed the significance test while other variables passed the significance test of characteristic differences; therefore, the variables with significant characteristic differences were retained.


## 5.1.3. Multicollinearity Test

Logical regression is sensitive to the multicollinearity of variables. Before establishing the model, whether there is multicollinearity among independent variables is first tested. In this paper, the variance inflation factor (VIF) is calculated to test the multicollinearity effect, and the results are shown in Table12. The collinearity rule using the VIF is that if the VIF exceeds 10, severe multicollinearity is considered. The test results (Tables 4–5) show that there is no serious multicollinearity among the above independent variables. The correlation analysis shows the rationality of the selection of independent variables, excludes the multicollinearity among variables, and prepares for the subsequent modeling analysis.Table 12
Results of the multicollinearity test among variables.
VarAmountMonthGradeAgeSexEduIncomeLengthAbilityWillingUrgentPurpVIF1.5451.0571.0281.0341.0061.0211.4961.0581.0871.061.0121.031


## 5.2. Modeling and Results

Before exploring the effect of the text variables on the default rate, this paper first verifies the effect of the control variables on the default rate. A logit regression is conducted on the control variables to verify the influence of the control variables on the occurrence of default. The model is as follows:(6)log itDefault=C+β1⋅Amounti+β2⋅Mouthi+β3⋅Agei+β4⋅Sexi+β5⋅Edui+β6⋅Incomei+β7⋅Gradei+εi.The model results are shown in Table13. We find that there is a significant positive correlation between the loan amount and borrowers’ default; that is, the higher the borrower’s total loan amount, the greater the possibility of default, which is consistent with the conclusion obtained by most scholars [30, 47]. However, there is a significant negative correlation between the loan term and borrowers’ default rate. This may be because a longer loan period results in less installment repayment pressure, so it is not easy to default. There is a significant positive correlation between age and borrower default rate. Older borrowers do not have a stable income compared with young people, so older people have a higher default risk. Regarding gender, the default risk of men is 1.242 times higher than that of women, which may be because women are usually more risk averse while most men have high-risk preferences, resulting in a high default rate among men. This is consistent with the findings of Chen and Jiang et al. [28, 46]. Regarding education, taking the highest level of “research and above” as the reference group, the probability of default for other educational levels is obviously higher. Regarding income, taking the highest income level as the reference group, it is found that the default risk of other low-income level groups is relatively smaller. Most people believe that high income corresponds to low default risk, but, in fact, when considering a person’s default risk, it is necessary to consider not only his income capacity but also his consumption capacity, economic status, and repayment willingness. The main target of P2P online lending is middle- and low-income people, so the high income status in this paper is relative. In conclusion, the high income classification in online lending may introduce a higher risk of default due to its unreasonable consumption. Regarding credit grade, taking the “HR” grade as the reference group, Grade (4) (credit Grade E), Grade (5) (credit Grade D), and Grade (6) (credit Grade C) that pass the significance test have lower probabilities of default.Table 13
Logical regression results of control variables.
Model 1VarCoefficientp valuesEXP (B)VarCoefficientp valuesEXP (B)C−0.1450.733∗0.865Income (2)−1.5650.000∗0.209Amount0.2850.007∗∗1.000Income (3)−1.4410.000∗0.237Month−0.0220.000∗∗0.978Income (4)−1.5510.000∗∗0.212Age0.0150.005∗1.015Income (5)−0.9320.000∗∗0.394Sex0.2170.028∗1.242Grade0.000Edu0.000Grade (1)1.0340.354∗2.812Edu (1)1.5390.000∗∗4.660Grade (2)−1.5660.167∗0.209Edu (2)2.0750.000∗7.965Grade (3)−0.6080.165∗∗0.544Edu (3)−0.9560.001∗2.601Grade (4)−1.1590.000∗∗0.314Income0.000Grade (5)−0.8850.000∗∗0.413Income (1)−1.1310.297∗∗0.323Grade (6)−0.2560.003∗∗∗0.774NagelkerkeR20.692N4073Note: the symbols ,∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.The above control variables were used to examine the variables’ influence on the borrower default probability using loan description text mining. To verify the above hypotheses proposed by H1 ∼ H5, the following logistic regression model including the text length, the purpose of the loan, the reimbursement ability information, willingness to reimburse, and degree of borrowing urgency was established, and the results are shown in Table14:(7)logitDefault=C+β1⋅Lengthi+β2⋅Purposei+β3⋅Abilityi+β4⋅Willingi+β5⋅Urgenti+β6⋅Controlsi+εi.(a)
In Model 2, text length was selected as the independent variable, and the others were selected as the control variables. The regression results verifiedHypothesis H1 proposed in this paper. The length of the loan description text is significantly correlated with the level of default risk of borrowers, which is consistent with the research results of Li et al. [29]. According to the negative regression coefficient, the longer the loan description text is, the lower the default risk of the borrower is. It may be that the longer the loan description is, the more abundant information the borrower provides and the more sincere their loan attitude is. Furthermore, the information is realer. For example, some borrowers will introduce their income, loan purpose, historical lending situation, and other information in detail.(b)
Model 3 is the regression results of selecting the loan purpose as the independent variable, which verifiesHypothesis H2 proposed in this paper. The loan purpose has a significant impact on default risk, and different borrowing purposes have different default risks, which is consistent with the results of Yao et al. [48]. With “personal consumption” as the reference group, “investment and entrepreneurship” (Purp (2) and “car purchase loan” (Purp (4) showed significant differences, but “short-term turnover” (Purp (1) and “decoration loan” (Purp (3) did not show significant differences with “personal consumption” in default risk.(c)
Model 4 is the regression results of choosing repayment ability as the independent variable, and Model 7 is the regression result of all text variables. Combined with the regression results of Model 4, Model 5, and Model 7, the borrower’s initiative to supplement repayment ability information and repayment willingness information is significant in Models 4 and 5 (the significance level is 5%), which verifies that the default risk is lower. However, it becomes nonsignificant in the regression of the overall text variable of Model 7, which may be caused by the mutual influence between the supplemental information of repayment ability and repayment willingness and the length of the text. This does not mean that more information on repayment ability and repayment willingness leads to lower default. Furthermore, it also indicates thatHypotheses H3 and H4 are not true.(d)
The regression results in Model 6 and Model 7 interestingly show that the higher the urgency of borrowing, the greater the default risk, thus verifyingHypothesis H5. This may be because the more urgent the borrower’s borrowing needs, the lower his ability to resist financial risks, indicating that the borrower is not reasonable in their use of funds or the borrower does not have a stable source of income, which will lead to the borrower’s failure to repay on time. Furthermore, the P2P platform adopts the mode of no mortgage and no guarantee, so the default cost of borrowers is almost zero. According to the rational assumption that everyone engaged in economic activities is self-interested, it is not difficult to understand the default situation of borrowers when the default cost is far lower than the default income.Table 14
Logical regression results of loan description text variables and overall text variables.
VarModel 2Model 3Model 4Model 5Model 6Model 7DefaultDefaultDefaultDefaultDefaultDefaultC−2.415∗∗∗−2.332∗∗∗−2.607∗∗∗−2.612−2.393∗∗∗−2.557∗∗∗(0.007)(0.708)(0.712)(0.707)(0.705)(0.726)Length−0.007∗∗∗−0.008∗∗∗(−0.001)(0.001)Ability−0.060∗∗0.06(0.074)0 (.077)Willingness−0.116∗∗−0.021(0.069)(0.071)Purp 10.1790.087(0.138)(0.235)Purp 20.472∗∗∗0.462∗∗∗(0.133)(0.135)Purp 30.278∗∗0.224∗(0.129)(0.131)Purp 40.569∗∗∗0.532∗∗∗(0.163)(0.164)Urgency0.049∗∗0.037∗∗(0.300)(0.235)ControlsYESYESYESYESYESYESNagelkerkeR20.6950.6930.6940.6960.6930.697N407340734073407340734073Note: the symbols∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.The control variable and the text variable were eliminated from Model 7, and the overall regression was conducted to obtain Model 8 (Table15). The results showed that the default probability of the borrower decreased by 0.7% with each one-unit increase of the loan description text (length) when the control variables remained unchanged. Regarding loan purposes, taking “personal consumption” as the reference, it is found that there is no significant difference between the default situations of “short-term turnover” (Purp 1) and “decoration loan” (Purp 3) compared with the reference group, but the default risk of borrowers who borrow for a “car purchase loan” (PURP 4) is 1.698 times that of the reference group. This may be because some borrowers’ demand for car purchases may be caused by vanity consumption, which increases the repayment pressure and leads to default. The default risk of PURP 2 borrowers is 1.419 times that of the reference group. Investment and entrepreneurship are high-risk and high-return behaviors. Borrowers are very likely to be influenced by their own decisions and market policies, resulting in investment losses and entrepreneurial failure and the failure to recover funds, resulting in default. The results of Model 8 again verified that the more urgent the loan is, the greater the probability of default of the borrower is. This may be caused by the borrower’s lack of a stable job or low default costs. In addition, there may be malicious nonpayment that leads to default.Table 15
Overall logistic regression results of control variables and text variables.
Model 7VarCoefficientp valuesEXP (B)VarCoefficientp valuesEXP (B)C−0.0310.9451.031Grade (1)0.9290.0002.532Amount0.2050.007∗∗1.000Grade (2)1.4560.407∗∗0.233Month−0.0240.000∗∗0.976Grade (3)0.6120.207∗∗0.542Age0.0150.005∗1.015Grade (4)−1.0990.000∗∗0.333Sex0.2220.025∗1.249Grade (5)−0.8820.000∗∗0.414Edu (1)1.4970.000∗∗4.467Grade (6)−0.2700.002∗∗∗0.764Edu (2)−2.0150.000∗∗7.504Length−0.0070.000∗∗∗0.993Edu (3)−0.9290.001∗∗∗2.533Purp (1)0.0350.807∗∗1.035Income (1)1.1520.285∗∗∗0.316Purp (2)0.3500.011∗∗1.419Income (2)1.6030.000∗∗0.201Purp (3)0.2460.063∗∗1.279Income (3)−1.4880.000∗∗0.226Purp (4)0.5300.001∗∗∗1.698Income (4)−1.5880.000∗∗0.204Urgency0.2360.000∗∗1.235Income (5)−0.9810.000∗∗∗0.375NagelkerkeR20.721N4073Note: the symbols∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, respectively.The NagelkerkeR2 in the logistic regression model ranges from 0 to 1. The greater the value is, the greater the proportion of the variation explained by the model is, and the higher the accuracy of the model prediction is. The regression results of Model 1 and Model 7 show that the Nagelkerke R2 of the model increased by nearly 3% after the text variables mined in this paper were included in the model. This shows that the text variable has a certain predictive effect on the default of the borrower and to some extent reflects that the description information of the loan can effectively reduce the information asymmetry between the lender and the borrower.


## 6. Conclusion and Future Work

This paper explores the relationship between loan description information and borrower default in P2P lending by mining five text variables, including the text length, loan purpose, supplementary repayment ability information, supplementary repayment willingness, and loan urgency, and uses a logistic regression model to conduct an empirical analysis on the relationship between text variables and borrower default. The results showed that the NagelkerkeR2 of the model increased after the addition of text variables, which indicated that text variables had a certain predictive effect on the default probability of borrowers. There was a significant negative correlation between text length and the default probability of borrowers, which indicated that the greater the amount of loan description information is, the less likely the default was to occur. Second, the purpose of borrowing also has a significant relationship with the default probability of the borrower. A higher urgency of borrowing resulted in greater default risk which is also supported by data, indicating that the higher the urgency of borrowing is, the lower the ability of the borrower to resist financial risks is.Although the results confirmed that text variables can effectively enhance the precision of the default prediction model, the text variables are unconfirmed information. A good image of loan fraud users may be forged, which should strengthen the information audit platform, especially for default users to complete the characteristic analysis and reduce the default risk of the borrowers. This paper only uses P2P lending data. However, there are still some differences in the scale and mechanism among the world’s major P2P online lending platforms, and subsequent studies can compare multiple platforms. In addition, the research on the text mining of loan descriptions is mainly conducted using the text length, loan purpose, loan urgency, and so on. Follow-up research can be conducted on the aspects of social network structures, and so on.



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*Source: 4060676-2021-06-16.xml*