If someone promises to pay you back, they probably won’t pay you back.

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Back in the stone age of P2P lending (aka 2006), I used to read through Prosper loan listings one-by-one. Borrowers would outline their monthly budgets showing how they could afford their loan payments, along with explanations of why they needed the money (credit card debt, home improvement, etc.) and why they would pay you back (steady job, good credit history, etc). I’m not sure if this is even an option anymore, but in any case, I wasn’t very good at it.

The New York Magazine article How to Predict If a Borrower Will Pay You Back (excerpted from the new book Everybody Lies) discusses an academic paper that actually analyzed keywords within past Prosper listings against their default history. Consider the following 10 phrases:

  • God
  • promise
  • debt-free
  • minimum payment
  • lower interest rate
  • will pay
  • graduate
  • thank you
  • after-tax
  • hospital

Half of them are used by people most likely to pay back the loan. The other half are used by people who are least likely to pay back the loan. Care to venture a guess which are which?

Generally, if someone tells you he will pay you back, he will not pay you back. The more assertive the promise, the more likely he will break it. If someone writes “I promise I will pay back, so help me God,” he is among the least likely to pay you back. Appealing to your mercy—explaining that he needs the money because he has a relative in the “hospital”—also means he is unlikely to pay you back. In fact, mentioning any family member—a husband, wife, son, daughter, mother or father—is a sign someone will not be paying back. Another word that indicates default is “explain,” meaning if people are trying to explain why they are going to be able to pay back a loan, they likely won’t.

The phrases used by folks who are most likely NOT to pay back their loans are God, promise, will pay, thank you, and hospital. If someone promises that they will pay you back, they probably won’t pay you back. The more emotions are involved, the less likely they are to pay you back.

This is an interesting wrinkle as lending is such a huge part of the investing world – mortgages, bonds, insurance, and so on.

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  1. Sorry for getting political, but there was a Washington Post column that talked about a similar idea.

    “In a book called “Spy the Lie,” a group of former intelligence officers explain the behavioral and linguistic cues that indicate when someone is being deceptive. Interestingly, many of these are evident in Trump’s responses to questions about Russia’s covert involvement in U.S. politics.?The authors’ list of tip-offs includes “going into attack mode,” “inappropriate questions,” “inconsistent statements,” “selective memory” and the use of “qualifiers,” such as “frankly,” “honestly” and “truthfully.” The authors’ point is that people who are innocent answer questions simply and directly.”

    Setting aside Trumps language, the book “Spy the Lie” sounded interesting.

  2. My take is that if you decided to “lend” money to someone it shouldn’t be a loan…but a gift.
    It alleviates many of the pitfalls when it comes to this kind of thing.

    • I charge interest when I lend money but if I consider the default rate I net lose money. People promise anything beforehand but when it comes time to pay back you’re no longer a high priority.

    • You are a nice person to gift people money on P2P lending. The time I did it I definitely did not think of it as a gift. Not sure what you wrote is actually in reference to the post.

  3. Trump’s language? Let’s not pretend that he’s the only one who lies. How do you know when a politician is lying? Just assume they always are. They are taught rhetoric and nuance, or how to manipulate people with words. Trump is a piker compared to some of the people you probably lionize…

  4. Question: “How can you tell when a politician is lying?”

    Answer: “His lips are moving.”

  5. Prosper drama was some of the best drama I’ve ever seen on the internet. In the end Alan was right.

  6. I think I was a lender on Prosper around the same time as Jonathan. (2006-8.) There was a running joke in
    the Prosper forum based on honest and common observation that if a borrower used the term “God Bless” in the listing text, it was the kiss of death. Also, of my 255 total loans, the 30 or so that ended up defaulting at some point during the life of the loan included ALL of the ones that used at least one exclamation point in the subject line / title for the loan.

    I think the observations I described jive with the study described in this post. Loans are contracts. They work if both parties look at it as an arrangement that benefits both. When both parties understand where the other is coming from, it is a good thing.

    The loans are not donations. There is nothing to thank the lender for. There should be nothing to get emotional about and use exclamation points in your subject line. Would these same borrowers go into a bank and ask for a loan using the vocal equivalent of four exclamation points?!!!! Would they tell the loan officer “God bless you!” and promise promise promise to pay it back? How effective would that be?

    Meanwhile, the words that seemed most favorable to the loan being paid back tend to show the borrower understands the lenders’ point of view. I realize you are concerned with my credit score, here’s what I have to say about it. My motivation is to become debt-free, and I plan to use this loan to refinance higher-rate debt with this lower-rate loan. All of these things acknowledge the arrangement between lender and borrower.

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