Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans

We surveyed 971 individuals about their experiences with personal loans. Beyond the objective characteristics of the loans (e.g., whether interest was charged), and the purpose of the loan, we tested – and found support for – two main predictions: (1) at recall and evaluation of loans would be subject to a self-serving bias such that borrowers would, for example, recall having paid back a larger proportion of the loan, and (2) that loans, and particularly those not paid off by the agreed upon date, would have pernicious effects on the personal relationship between lender and borrower. Furthermore, we found that borrowers have a blind spot when it comes to recognizing the negative feelings and perceptions evoked in lenders by delinquent loan repayment.

► Nine hundred and seventy one Americans were surveyed about their most recent lending and borrowing experiences. ► We observed substantial evidence of self-serving bias on the part of borrowers. ► Defaulted loans are more frequently reported by lenders than by borrowers. ► Defaulted loans are a major source of bad feelings between the two parties. ► Borrowers fail to appreciate lenders’ negative feelings – they display blind spots.