The Psychology of Loan Approval and Understanding Lender Behavior

Financial institutions typically base loan approval decisions on customer behavior and credit history as well as current financial status of borrowers.

Neuroimaging was used by researchers to monitor participants’ brain activity while reviewing loan requests, with those that elicited positive arousal being more successful at receiving funding, while applicants whose photos caused negative emotional arousal were least successful in getting funded.

Personality traits

Personality traits are relatively stable ways of thinking and behaving that have an influence over our decisions in many situations. They are typically measured using personality tests administered to people self-reporting on them. Personality traits may alter your decision making in many ways, including whether and how much debt to take out.

There are five key personality traits, such as extraversion, agreeableness, conscientiousness, neuroticism (or emotional stability) and openness to experience. Understanding these characteristics helps us understand why someone may choose one type of loan over another; for instance a person with high agreeableness tends to be more cooperative and trustworthy.

Prior research revealed that personality traits like effective financial decision-making, self-control, conscientiousness, selflessness and giving (charitable) attitude as well as money attitude were significant predictors of loan repayment behavior. Our statistical analyses further confirmed these psychological determinants were positively associated with debt repayment tendency.


According to this study, credit approval is determined more by psychological than economic indicators for those with previous debt experience. Borrowers who achieve positive scores on psychometric tests assessing effective economic decision-making, self-control, conscientiousness, selflessness and giving attitude, neuroticism as well as having a positive approach toward money have an increased chance of repaying their loans on time.

Researchers conducted several experiments to explore how emotions can influence lending behavior. Participants reviewed photographs of loan applicants and read their requests before making their decisions on whether or not to lend the applicants money. Neuroimaging techniques were also employed to observe participants’ responses to information presented to them.

Researchers found that photographs of applicants evoking positive emotional reactions were most likely to get loans. This correlation could be explained by activity in the nucleus accumbens – an area of the forebrain associated with motivation, pleasure and reward processing and, consequently, charitable giving.


Researchers investigated the effects of platform environment on lending behavior by using data from Kiva, one of the world’s largest donation-based crowdfunding platforms. To do so, they randomly assigned groups with differing group-lender motivation fits and observed their loan counts change over time as they monitored group size and openness effects on this behavior. Their study revealed that lenders were more likely to lend when their group-lender motivation matches were strong – an outcome of this research finding being that lenders more frequently loaned when their group-lender motivation match was high than when their group-lender motivation match was lower; furthermore than this research revealed, lenders more frequently loaned when their group-lender motivation matches were closer.

In this study, a neuroimaging experiment was used to observe brain activity of 28 participants as they reviewed photographs and read loan appeals before making decisions whether to lend money. Researchers discovered that those whose images elicited positive emotions had greater success obtaining loans – this activity being recorded in the nucleus accumbens, an area associated with motivation, pleasure, reward processing and charitable giving in their forebrain regions.

These findings are vital for understanding how microcredit loans function and the psychological factors affecting them, leading to better practices and policies from financial institutions.


Borrowers and lenders engage in a complex emotional process that can have lasting repercussions for their finances and wellbeing. Debt can generate anxiety and stress. Recognizing these emotional responses is crucial when creating strategies for responsible borrowing.

Researchers have also discovered that individual personality traits play an integral part in loan repayment behaviors. Traits like effective financial decision-making, self-control, conscientiousness and giving attitudes have all been found to correlate with loan repayment behavior.

Stanford psychologists have also discovered that people are more likely to lend money to borrowers who evoke positive emotions, using an online micro-lending task designed to recreate it. Their study of 28 participants’ brain activity as they chose whether or not to lend found that when shown photographs of loan applicants with loan requests they lit up in an area associated with motivation and reward processing; suggesting positive emotions like excitement may influence lending behavior.

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