ITM Web of Conferences 44, 03019 (2022) https://doi.org/10.

1051/itmconf/20224403019
ICACC-2022

Loan Prediction System Using Machine Learning

3 4 5
Anant Shinde1, Yash Patil2, Ishan Kotian , Abhinav Shinde and Reshma Gulwani
1,2,3,4
Department of Information Technology, RAIT, Nerul, India
5
D.Y. Patil Deemed to be University, Ramrao Adik Institute of Technology, Nerul, Navi Mumbai, India

Abstract. As the needs of people are increasing, the demand for loans in banks is also frequently
getting higher every day. Banks typically process an applicant's loan after screening and verifying
the applicant's eligibility, which is a difficult and time-consuming process. In some cases, some
applicants default and banks lose capital. The machine learning approach is ideal for reducing
human effort and effective decision making in the loan approval process by implementing machine
learning tools that use classification algorithms to predict eligible loan applicants.

1 Introduction take appropriate action on demand. This helps all other

departments handle other paperwork.
Machine Literacy is a subset of artificial intelligence
that allows computer programs to automatically learn
from former tasks. It works by analysing the data, 2 Literature Survey
relating patterns, and incorporating minimum mortal
According to the authors, the forecasting process begins
intervention. Nearly any work that can be done using a
with data clean-up and processing, missing value
data description pattern or set of rules can be done using
substitution, data set experimental analysis, and
a machine learning machine. This allows companies to
modelling, and continues to model evaluation and test
modify processes that preliminarily only humans could
data testing. A logistic regression model has been
make hypotheticals for client service calls, accounts,
executed. The highest accuracy obtained with the
and reviews.
original dataset is 0.811. Models are compared based on
Loan distribution is the middle enterprise of virtually
performance measurements such as sensitivity and
every bank. Loan distribution is the middle enterprise of
specificity. As a result of analysing, the following
nearly every bank. Utmost of a bank's means come
conclusions were drawn. However, other characteristics
directly from the gains it makes from the loans it makes.
of customers that play a very important role in lending
The main thing of the banking terrain is to put wealth in
decisions and forecasting defaulters should also be
a safe place. Currently, many banks / financial
evaluated. Some other traits, such as gender and
companies approve loans after a verification and
marriage history, do not seem to be considered by the
validation redemption process, but it is not yet clear if
company [1]. A credit credibility soothsaying system
the selected applicant is correct among all applicants.
that helps companies make the right opinions to
Through this system, it is possible to predict whether a
authorize or reject the credit claims of guests. This helps
particular applicant is safe and the entire process of
the banking assiduity to open effective distribution
verifying the characteristics will be automated by
channels. This means that if the customer has a
machine learning technology. Credit forecasting is very
minimum repayment capacity, their system can avoid
useful for both bank employees and applicants.
future risks. Including other techniques (using the Weka
The goal of this system is to provide a quick, immediate
tool) that are better than the general data mining model
and easy way to select good applicants. It can offer
has been implemented and tested for domains [2]. The
banks special benefits. The credit forecasting system can
author suggests that, a credit status model for predicting
automatically calculate the weights for each feature that
loan applicants as valid or standard customers. The
participates in credit processing, and the new test data
proposed model shows a score of 75.08 when
will process the same features for the assigned weights.
classifying loan aspirants using R-Package. Lenders can
The model can set a deadline to see if the applicant can
use this interpretation to make mortgage choices for
approve the loan. Credit analysis allows to jump to
mortgage operations. In addition, comparative studies
specific applications and check according to priority.
were conducted at different iterative levels. The
This system is exclusively for bank / financial company
replication position is a 30- grounded ANN model that
management authorities, the entire forecasting process
offers a more advanced delicacy than other situations.
is carried out privately and no stakeholders can change
This model can be used to avoid large losses in
the process. The results of a particular credit ID can be
marketable banks [3]. Six machine learning
sent to various departments of the bank so that they can
classification models were used to predict Android

© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the Creative Commons Attribution
License 4.0 (http://creativecommons.org/licenses/by/4.0/).
ITM Web of Conferences 44, 03019 (2022) https://doi.org/10.1051/itmconf/20224403019
ICACC-2022

applications. The model is available in open-source 3.2 EMI – In Fig 2, EMI is the yearly volume that the
software R. This application works well and meets the seeker must pay to reimburse the loan. The model
requirements of all banks. The downside of this model behind this variable is that people with lofty. EMI may
is that it gives each element a different weight, but in
possess challenges with the prepayment of their loans.
reality, it may be possible to approve a loan only based
on a single powerful element, which is not possible with EMI can exist figured by taking the rate of the loan
this system. This component can be easily connected to volume to the majority the loan volume rate of the loan
many other systems. There are cases of computer volume to the majority of the loan volume.
failure, and the most important weights of content errors
and features are fixed by the automatic prediction
system, and soon, so-called software may be safer, more
reliable and more [4]. Risk assessment and forecasting
is an important task in the banking industry in
determining whether a good and lazy loan applicant is
applicable. To improve the accuracy of risk, risk
assessments are conducted in primary and secondary
education. Customer data is extracted and related
attributes are selected using information gain theory.
Rule forecasting is performed for each credit type based
on predefined criteria. Approved and rejected applicants
are considered "Applicable" and evaluated as "Not
Applicable". Corresponding experimental results have
shown that the method proposed predicts better
accuracy and takes less time than existing methods [5]. Fig. 2. Density vs EMI
The main purpose of this design is to prognosticate
which customers will be repaid with a loan because the 3.3 Balance Income – In Fig 3, this is the return
lender needs to anticipate the problem that the borrower
deserted over after compensating the EMI. The model
won't be suitable to repay the threat. Studies of three
models show that logistic regression with a rating is behind creating this variable is that the advanced the
superior to other models, random forests, and decision valuation, additionally probable a person is to reimburse
trees. Poor credit seekers aren't accepted, presumably the loan and thus additionally probable it's to authorize
because they have the option of not paying. In utmost the loan.
cases, high-value appliers may be eligible for a
reduction that may repay the loan. Certain sexual
orientations and marriage status appear to be out of the
reach of the company [6].

3 Feature Engineering
Predicated on the field knowledge, this system can
develop new features that can affect the target variables.
Created three new functions:

3.1 Total Income – In Fig 1, as explained in the

bivariate analysis, combined the income of the applicant
with the income of the co-applicant. The higher the total
income, the more likely there are to get loan approval. Fig. 3. Density vs Balance Income

4 Proposed Framework
4.1 Business understanding:
In the early stages, the base is on deriving the design
from a custom outlook and rephrasing that lore into data
mining challenge delineations and primary designs.

4.2 Data convention:

The data convention aspect focuses on the original data
library, data command, relating data rate outcomes, and
a subset of stake for undertaking retired data.

Fig. 1. Density vs Total Income Log 4.3 Data processing:

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ITM Web of Conferences 44, 03019 (2022) https://doi.org/10.1051/itmconf/20224403019
ICACC-2022

The data processing aspect includes all the conditioning

to produce the concluding dataset.

4.4 Modelling:
The algorithm which will be used for data modelling is
Logistic Regression using stratified k-folds cross-
validation and Random Forest.

Logistic Regression using stratified k-folds cross-

validation: This system uses validation to see how
robust the model is against hidden data. This is an
approach for booking distinct exemplifications of
reports that don't train the model. Latterly, the system
tests the model in this illustration and also finalize it.
Some of the generally applied confirmation styles are Fig 5. Feature importance predicting the target variable
the confirmation incubate path, k-fold cross-validation,
Leave one outcross-validation (LOOCV), and stratified In Fig 5, Credit_History is the most major point
k-fold cross-validation. In Table 1, analyzed the mean succeeded by Balance Income, Total Income, EMI.
validation and f1-score of Logistic Regression with the Accordingly, feature engineering assisted the model in
k-folds model. forecasting the target variable.
Table 1. Accuracy for Logistic Regression model
The mean validation accuracy for this 0.7214 5 Conclusion
model turns out to be
Borrowers use a loan application to qualify for a
The mean validation f1 score for this 0.8279 mortgage. The above research employs a logistic
model turns out to be regression algorithm-based prediction model. To create
a logistic classification model that predicts loan status,
over 600 sample data were collected and evaluated. The
In Fig 4, Visualized the roc curve: algorithm can obtain a maximum accuracy of about 82
percent and regression models are used to obtain such
precision. The model can anticipate outcomes and is
quickly adaptable to a wide range of inputs. Also, this
strategy saves the banking industry and its staff a
significant amount of time.

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ICACC-2022

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