What does not kill us makes us stronger: the story of repetitive loan rejections


  • Mustafa Caglayan

    (Heriot-Watt University)

  • Oleksandr Talavera

    (o.talavera@bham.ac.uk) (University of Birmingham)

  • Lin Xiong

    (Robert Gordon University)


We examine factors that affect borrowing and lending when borrowers have experienced one or more failed funding applications. Using a unique dataset of 1,2 million loan applications from a peer-to-peer (P2P) loan platform in China, we investigate whether decision to apply varies with respect to the number of previous consecutive failures. Our results suggest that borrowers with better education are not likely to apply after a failed attempt. Repeat applicants provide less information in their loan narratives and are likely to pay higher interest rates per loan. We also find that females are discouraged early on. In relation to lender behavior, similar preferences apply across those who had one or more previous rejections as they prefer applications with high credit ratings and high income. Finally, our results are generally similar for both consumer and business loans.

Role of Verification in Peer-to-Peer Lending



Using data from a leading Chinese Peer-to-Peer (P2P) lending platform from 2012 to 2015, we investigate the role of verification in the P2P lending market. We find that borrowers with thorough and complete verification are more likely to obtain funding and also less likely to default on loans. We also find that borrowers that have incomplete verification are more likely to upwardly misrepresent their income. This leads to higher default rates for this group when compared to the default rates of more thoroughly verified borrowers. The further analysis documents that returning borrowers are more likely to maintain a good credit record. We discuss the implications of our findings for the role of verification in the growing P2P lending sector and the design of a stable financial system.