The relationship between soft information in loan titles and online peer-to-peer lending: evidence from RenRenDai platform

Abstract

Online peer-to-peer (P2P) lending is a central component of Internet finance. It can help borrowers raise funds quickly—a particularly useful feature for small and medium enterprises and individuals with no credit on record with a central bank. In this paper, we use data from Chinese RenRenDai lending platform to investigate the relationship between loan purpose and funding success rate. In order to identify the purpose of borrowing from the title of the loan, LDA topic model of text mining technology is applied to make classification for loan titles. Our results indicate that the purpose of the loan has a significant influence on whether the loan is successful. Ambiguity surrounding the loan’s purpose significantly reduces the likelihood of a borrower successfully securing that loan. Loan purpose for business often ensures a higher funding success rate. These results suggest that borrowers should comprehensively fill out the loan title when applying for funding via an online P2P platform. Results also suggest that online P2P platform investors do not blindly invest in others in an attempt to secure high returns.