A recent study from Tobias Berg at the Frankfurt School of Finance & Management along with other sources, suggest that lenders could be using your online activity and social networks to determine if you are more likely to default when it comes to them providing you with a loan.
When it comes to traditional methods, lenders have usually assessed loan applications based on affordability, credit score and security – all of which accounts for how costly your loan applications are and whether or not you’re approved in the first place. Poor security, lack of affordability and no personal guarantees could see your loan applications being denied or just too expensive.
Despite what traditional methods have entailed, studies at the Franfurt School of Finance and Management by Tobias Berg suggest that what mobile device you use, when you apply for a loan and your social circle could all determine how likely you are to default. This is your digital footprint affecting your loan applications.
A team of researchers analysing over 270,000 purchases on a German e-commerce website from October 2015 to December 2016, found that customers who would ‘buy furniture and pay later’ were approved loans based on factors from their digital footprint.
The e-commerce store, similar to Wayfair, would assess the user’s credit score and other factors such as:
- How customers to buy furniture and pay for it later through a loan service.
The store was already particularly well known for using a digital footprint alongside the user’s credit score to decide who qualified for a loan and therefore showed clear indications of what affected default rates. Factors included what device was used to apply, at what time the user applied, how their email address was written and their social network circle.
To ensure you save money, and are more likely to be accepted for the loans that you need, it’s important that you look at how you apply for loans in the future. With the advancement of the Fintech industry and alternative finance, your digital footprint will become an increasing factor when determining the outcome of your loan applications
The study is supported by the growing popularity of Lenddo, a Singapore based company which is already using digital footprints on a growing young population to determine customers’ financial stability.