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Predict Loan Default for Fintech

EasyMachine Learning00:00
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Your question is Predict Loan Default for Fintech. Take a moment with it on the right.

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Problem

Business Context

LendWise, a consumer lending fintech processing roughly 120K loan applications per month, wants a machine learning model to predict whether an applicant will default within 12 months of loan origination. The model will support underwriting decisions and risk-based pricing, so it must improve risk separation without creating an overly complex production system.

Dataset

You are given a historical dataset of funded loans from the last 3 years.

Feature GroupCountExamples
Applicant demographics6age, employment_length, home_ownership, state
Credit bureau variables12fico_score, revolving_utilization, delinquencies_2y, inquiries_6m
Financial variables10annual_income, debt_to_income, existing_loans, monthly_obligations
Loan attributes7loan_amount, term_months, interest_rate, purpose
Behavioral / derived5income_to_loan_ratio, credit_age_months, recent_inquiry_rate
  • Rows: 420K funded loans, 40 features
  • Target: default_12m — whether the customer becomes 90+ days past due or charged off within 12 months
  • Class balance: 11.6% default, 88.4% non-default
  • Missing data: 18% missing in employment_length, 9% in annual_income, and light missingness (<3%) in several bureau fields

Success Criteria

A good solution should achieve meaningful lift over a logistic regression baseline, with strong ranking quality for underwriting. Target performance is ROC-AUC >= 0.82, PR-AUC >= 0.42, and a top-decile lift > 2.5 on a held-out test set.

Constraints

  • Predictions must be generated in <50 ms per application in an online API.
  • Risk and compliance teams require feature-level explanations.
  • The model should be retrained monthly and remain stable under moderate feature drift.

Deliverables

  1. Build a binary classification pipeline to predict 12-month default.
  2. Explain model choice, preprocessing, and feature engineering decisions.
  3. Define a validation strategy that avoids leakage from future-originated loans.
  4. Report evaluation metrics and recommend an operating threshold for underwriting.
  5. Provide production-ready Python code for training and inference.