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Studies

Including a Story When Applying for Loan May Help Borrowers

David Andrew 7/25/14

When it comes to peer-to-peer micro loans, lenders are looking at more than a person’s credit history.

According to a recent study from the University of Delaware and Rice University, borrowers that include a story about their financial situation have a much better shot at getting money than borrowers that didn’t.

The researchers looked loan data on Prosper.com, a site where individuals can get loans between $2,000 and $25,000. When applying, a borrower has the option of including a narrative explaining past credit decisions and plans for the future.

It turned out including a narrative made a significant difference for acceptance rates. Sixty-five percent of applicants that included a narrative received a loan. For the applicants that didn’t include a narrative, only 45.8 percent received a loan.

“Sixty-five percent of applicants that

included a narrative received a loan.”

Including a narrative also influenced loan interest rates. The researchers organized the narratives as having six different possible themes: trustworthy, successful, economic hardship, hardworking, moral and religious.

If an applicant had a narrative with a trustworthy theme, it led to a significant loan discount. Borrowers gave a 30 percent discount to applicants with a trustworthy narrative, an average of $375 of savings per loan application.

While these narratives seem to help borrowers, they didn’t appear to help lenders.

Applications with trustworthy narratives did not have a significantly different default rate than other applications. The trustworthy theme didn’t seem to make borrowers any more honest.

However, if you are looking to borrow money through a peer-to-peer lending site, keep this study in mind. Taking a few minutes to craft a good story could be a big help for your financing.

Source: The University of Delaware and Rice University. Photo source: salon.com.

About David Andrew
David Andrew is a former New York Life financial adviser, holding Series 6 and Certified Financial Planner credentials from his years with the company. He also holds degrees in economics and finance from McGill University. David is now a well-published finance writer with special expertise in credit cards and auto insurance. In addition to his work on BadCredit.org, his articles have been featured on eHow, Zacks.com, TheNest.com, Chron.com and other popular sites. When he's not keeping up with the latest news in the world of finance, David enjoys playing tennis and golf.
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