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Loan Approval Prediction using Machine Learning

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  • Last Updated : 23 Sep, 2022
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LOANS are the major requirement of the modern world. By this only, Banks get a major part of the total profit. It is beneficial for students to manage their education and living expenses, and for people to buy any kind of luxury like houses, cars, etc.

But when it comes to deciding whether the applicant’s profile is relevant to be granted with loan or not. Banks have to look after many aspects.

So, here we will be using Machine Learning with Python to ease their work and predict whether the candidate’s profile is relevant or not using key features like Marital Status, Education, Applicant Income, Credit History, etc.

Loan Approval Prediction using Machine Learning

You can download the used data by visiting this link.

The dataset contains 13 features : 

1 Loan A unique id 
2 Gender Gender of the applicant Male/female
3 Married Marital Status of the applicant, values will be Yes/ No
4 Dependents It tells whether the applicant has any dependents or not.
5 Education It will tell us whether the applicant is Graduated or not.
6 Self_Employed This defines that the applicant is self-employed i.e. Yes/ No
7 ApplicantIncome Applicant income
8 CoapplicantIncome Co-applicant income
9 LoanAmount Loan amount (in thousands)
10 Loan_Amount_Term Terms of loan (in months)
11 Credit_History Credit history of individual’s repayment of their debts
12 Property_Area Area of property i.e. Rural/Urban/Semi-urban 
13 Loan_Status Status of Loan Approved or not i.e. Y- Yes, N-No 

Importing Libraries and Dataset

Firstly we have to import libraries : 

  • Pandas – To load the Dataframe
  • Matplotlib – To visualize the data features i.e. barplot
  • Seaborn – To see the correlation between features using heatmap

Python3




import pandas as pd
import numpy as np
import matplotlib.pyplot as plt
import seaborn as sns
  
data = pd.read_csv("LoanApprovalPrediction.csv")


Once we imported the dataset, let’s view it using the below command.

Python3




data.head(5)


Output:

 

Data Preprocessing and Visualization

Get the number of columns of object datatype.

Python3




obj = (data.dtypes == 'object')
print("Categorical variables:",len(list(obj[obj].index)))


Output :

Categorical variables: 7 

As Loan_ID is completely unique and not correlated with any of the other column, So we will drop it using .drop() function.

Python3




# Dropping Loan_ID column
data.drop(['Loan_ID'],axis=1,inplace=True)


Visualize all the unique values in columns using barplot. This will simply show which value is dominating as per our dataset.

Python3




obj = (data.dtypes == 'object')
object_cols = list(obj[obj].index)
plt.figure(figsize=(18,36))
index = 1
  
for col in object_cols:
  y = data[col].value_counts()
  plt.subplot(11,4,index)
  plt.xticks(rotation=90)
  sns.barplot(x=list(y.index), y=y)
  index +=1


Output:

 

As all the categorical values are binary so we can use Label Encoder for all such columns and the values will change into int datatype.

Python3




# Import label encoder
from sklearn import preprocessing
    
# label_encoder object knows how 
# to understand word labels.
label_encoder = preprocessing.LabelEncoder()
obj = (data.dtypes == 'object')
for col in list(obj[obj].index):
  data[col] = label_encoder.fit_transform(data[col])


Again check the object datatype columns. Let’s find out if there is still any left.

Python3




# To find the number of columns with 
# datatype==object
obj = (data.dtypes == 'object')
print("Categorical variables:",len(list(obj[obj].index)))


Output : 

Categorical variables: 0

Python3




plt.figure(figsize=(12,6))
  
sns.heatmap(data.corr(),cmap='BrBG',fmt='.2f',
            linewidths=2,annot=True)


Output:

 

The above heatmap is showing the correlation between Loan Amount and ApplicantIncome. It also shows that Credit_History has a high impact on Loan_Status.

Now we will use Catplot to visualize the plot for the Gender, and Marital Status of the applicant.

Python3




sns.catplot(x="Gender", y="Married",
            hue="Loan_Status"
            kind="bar"
            data=data)


Output:

 

Now we will find out if there is any missing values in the dataset using below code.

Python3




for col in data.columns:
  data[col] = data[col].fillna(data[col].mean()) 
    
data.isna().sum()


Output:

Gender               0
Married              0
Dependents           0
Education            0
Self_Employed        0
ApplicantIncome      0
CoapplicantIncome    0
LoanAmount           0
Loan_Amount_Term     0
Credit_History       0
Property_Area        0
Loan_Status          0

As there is no missing value then we must proceed to model training.

Splitting Dataset 

Python3




from sklearn.model_selection import train_test_split
  
X = data.drop(['Loan_Status'],axis=1)
Y = data['Loan_Status']
X.shape,Y.shape
  
X_train, X_test, Y_train, Y_test = train_test_split(X, Y,
                                                    test_size=0.4,
                                                    random_state=1)
X_train.shape, X_test.shape, Y_train.shape, Y_test.shape


Output:

((598, 11), (598,))
((358, 11), (240, 11), (358,), (240,))

Model Training and Evaluation

As this is a classification problem so we will be using these models : 

To predict the accuracy we will use the accuracy score function from scikit-learn library.

Python3




from sklearn.neighbors import KNeighborsClassifier
from sklearn.ensemble import RandomForestClassifier
from sklearn.svm import SVC
from sklearn.linear_model import LogisticRegression
  
from sklearn import metrics
  
knn = KNeighborsClassifier(n_neighbors=3)
rfc = RandomForestClassifier(n_estimators = 7,
                             criterion = 'entropy',
                             random_state =7)
svc = SVC()
lc = LogisticRegression()
  
# making predictions on the training set
for clf in (rfc, knn, svc,lc):
    clf.fit(X_train, Y_train)
    Y_pred = clf.predict(X_train)
    print("Accuracy score of ",
          clf.__class__.__name__,
          "=",100*metrics.accuracy_score(Y_train, 
                                         Y_pred))


Output  :

Accuracy score of  RandomForestClassifier = 98.04469273743017

Accuracy score of  KNeighborsClassifier = 78.49162011173185

Accuracy score of  SVC = 68.71508379888269

Accuracy score of  LogisticRegression = 80.44692737430168

Prediction on the test set:

Python3




# making predictions on the testing set
for clf in (rfc, knn, svc,lc):
    clf.fit(X_train, Y_train)
    Y_pred = clf.predict(X_test)
    print("Accuracy score of ",
          clf.__class__.__name__,"=",
          100*metrics.accuracy_score(Y_test,
                                     Y_pred))


Output : 

Accuracy score of  RandomForestClassifier = 82.5

Accuracy score of  KNeighborsClassifier = 63.74999999999999

Accuracy score of  SVC = 69.16666666666667

Accuracy score of  LogisticRegression = 80.83333333333333

Conclusion : 

Random Forest Classifier is giving the best accuracy with an accuracy score of 82% for the testing dataset. And to get much better results ensemble learning techniques like Bagging and Boosting can also be used.


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