Columbia Study Finds Link Between Language and Loan Default

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For financial experts, there’s a thin line between word choice and loan default. Columbia Business School recently explored the seemingly innocuous connection.

In a new paper entitled “When Words Sweat: Identifying Signals in the Text Loan Applications,” CBS business and marketing professor Oded Netzer, doctoral student Alain Lemaire, and University of Delaware’s Michal Herzenstein determined that “a borrower’s word usage is predictive of future payment at a similar scale as their financial or demographic information.”

“Loan defaulters are more likely to exhibit the writing styles of extroverts and liars,” which typically employ polite words (“God bless,” “thank you”), explanations (“explain,” “why,” “because”), mentions of hardship (“bankruptcy,” “divorce”), and short-term rather than long-term words on their applications, like ‘day’ or ‘week.’

Netzer elaborates: “When it comes to applying for a loan, our findings suggest that similar to body language effects, people leave traces of their intentions, their financial and emotional states, as well as their personality traits in what we term the ‘involuntary sweat in the words.’”

On the opposite end of the spectrum, borrowers whose language demonstrates a long-term focus and a “high degree of financial literacy” were more likely to pay back their loans. In either case, if financial institutions check out the writing on the wall, so to speak, it will “disclose the true situation and/or intent” of the borrower.

The research was conducted using data from, regarding customers requesting loans ranging from as little as $1,000 to as much as $25,000 from a pool of over 138,000 loans. CBS further explains; “The results were obtained after controlling for the borrower’s credit grade as well as other loan-specific and borrower-specific financial and demographic, which captures the financial implications of the borrower’s life circumstances, and the interest rate given.”

You can download Netzer, Lemaire, and Herzenstein’s research today.


About the Author

Jonathan Pfeffer

Jonathan Pfeffer joined the Clear Admit and MetroMBA teams in 2015 after spending several years as an arts/culture writer, editor, and radio producer. In addition to his role as contributing writer at MetroMBA and contributing editor at Clear Admit, he is co-founder and lead producer of the Clear Admit MBA Admissions Podcast. He holds a BA in Film/Video, Ethnomusicology, and Media Studies from Oberlin College.

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