Personal Loan Portfolio

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I often read that borrowers in one state or another are more likely to default on Prosper loans. I decided to investigate if there is any truth to the likelihood that some states are worse credit risks than others. The example that often comes to mind is Georgia which has a high default rate. Currently Georgia has nearly 8% defaults and about 10% late which is a higher than average rate of late loans, but nine states have more loans that are two or more months late than Georgia.

My interest in state by state loan default rates prompted my article Pennsylvania Loans: What were early Prosper lenders thinking? At the same time, I noticed how state interest rate caps vary widely from state to state — Pennsylvania 6% and Georgia 36%. I decided to see if the interest rate caps could partially explain the difference in Prosper loan default rates by state. My theory is that a lower interest rate cap prevents high risk borrowers from funding in a particular state, therefore a state with lower interest rate caps should have a lower loan late percentage.
So on February 6th and 7th, I pulled all the late stats on lendingstats.com by state. For comparison purposes, I counted every loan two months or more late as “late” to calculate the correlations. I could have used only defaults or all late loans, but the point is consistency for comparison. I also collected the average age of loans in days, the total loan amount, the average credit rate of borrowers, and the average interest rate on loans. Since my primary goal was to compare the late loans to interest rate caps, I threw out a few states that have multi-tiered rate cap limits such as Massachusetts.
H ere is an example of the data for each state:

State: Alabama
Interest Rate Cap: 36%
Number of Loans: 418
Total Loan Amount: $2.23M
Average Loan Amount: $5,334
Average Age of Loans (Loan Days): 292
Average Credit Score: 4.94 (Lending Stats converts the letter score into a number to generate an average.)
Average Interest Rate: 21.22%
Percentage two or more months late: 16.55%

Link to the spreadsheet of summarized state by state Prosper loan data.

So which factors are most correlated with late Prosper loans? The average credit score is the most correlated with the late loan percentage by state (0.73). The second and their most correlated statistics were the average interest rate and the number of loans respectively. The fourth most correlated factor was the state interest rate cap (0.27). Below is the table with the correlation statistics for each factor analyzed. You can click the table to enlarge the graphic. Details are also in the spreadsheet.

I also correlated among the various statistics by state. There were some interesting correlations such as the expected strong positive correlation (0.8) between the interest rate cap and the average interest rate.

Although, it was interesting to examine how much of an impact the default rate on Prosper loans might have been effected by state interest rate caps, I expected a stronger correlation.

I still did not prove whether or not the Prosper loan late percentages vary by state. Maybe next time…

Problems with the analysis: 1) I only used factors that were quick and easy to pull off of the summary page by state on lendingstats.com so other factors such as DTI were not used. 2) I pulled the data over two days because it was tedious, so that extra day for a few states could have impacted the late statistics. 3) Correlation does not prove causality.