How loan descriptions affect the likelihood that borrowers obtain loans in P2P networks? -An empirical analysis based on the "Renrendai" platform

Abstract

Information asymmetry is widespread in the P2P online lending market, creating an imbalance in the position of lenders and borrowers. This paper aims to expand the process of information exchange between lenders and borrowers by analyzing the link between soft information such as borrowers’ loan descriptions and lending outcomes. Based on the transaction data of the ‘Renrendai’ platform, this paper analyzed the linguistic features and extracted the content of loan descriptions using a latent Dirichlet allocation (LDA) theme model. To further explore the value of loan descriptions in predicting lending success, this paper conducts a prediction study based on a support vector machine model. It is found that: lenders focus on effective information in the loan descriptions, the linguistic complexity affects the transaction, with simple and direct statements being more favorable; the content for building a good personal image of the borrower will significantly contribute to the lending success. In the prediction study section, it is demonstrated that loan descriptions’ language feature indicators can improve prediction accuracy. This paper uncovers the importance of loan descriptions in online lending transactions, which has implications in assisting lenders’ investment judgments, as well as in platform information system improvements.