How to Tell If A Borrower Will Pay You Back

Some topics just beg to be written about.

I found one such topic on New York Magazine’s “The Science of Us” news summary on May 8, 2017.  Entitled “How to Predict If a Borrower Will Pay You Back”, it’s actually excerpted from the book EVERYBODY LIES: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are by Seth Stephens-Davidowitz.

The quoted excerpt discusses recent research by three economists—Oded Netzer and Alain Lemaire, both of Columbia, and Michal Herzenstein of the University of Delaware— and their quest for ways to predict the likelihood of whether a borrower would pay back a loan. Using data from the peer-to-peer lending site Prosper, where about 13 percent of borrowers default, they discovered the language potential borrowers use is a strong predictor of their probability to pay back.

The phrases used in loan applications by people most likely to pay back a loan are: debt-free, lower interest rate, after-tax, minimum payment, graduate.

On the other hand, the phrases used by those least likely to pay their loans back are: God, promise, will pay, thank you, hospital.

Why the difference?  Phrases such as “lower interest rate” or “after-tax” indicate a level of financial sophistication, suggesting someone more likely to pay their loan back.  Plus, mentioning positive achievements, like being a college “graduate” and being “debt-free,” also suggests ability to pay.

Phrases that suggest repayment is unlikely tend to be more assertive.  Generally, someone saying you will be repaid usually means you will not.  Someone saying “I promise I will pay back, so help me God,” is among the least likely to pay.  Appealing to your mercy (someone is in the hospital), mentioning another family member, or explaining why they are good credit risks are also red flags.

To summarize, according to these researchers, giving a detailed plan of how payments will be made and mentioning past commitments that have been kept are evidence someone will pay back a loan.  Making promises and appealing to your mercy are clear warning signs of default.  Strangely enough, someone mentioning God was 2.2 times more likely to default, one of the highest indicators.

This is all very interesting, but what about the ethical questions?  Should the words we write, especially on social media, be used as indicators of credit worthiness?  Some would consider this scary territory.

If you’re not one of those and would like to know more, the complete article with ethical implications is at  The photo came from that website.

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