Applying for a loan? Don't hit send just before lunch, Cambridge psychologists find

Bank credit officers are more likely to reject loan applications shortly before their lunch break, research from the University of Cambridge suggests.

A study indicated that “decision fatigue” around midday was associated with defaulting to the safer option of saying no, with loans more likely to be approved earlier and later in the day.

Decision fatigue is the tiredness caused by having to make difficult decisions over a long period.

Previous studies have shown that people suffering from decision fatigue tend to fall back on the “default decision” – choosing whichever option is easier or seems safer.

Researchers from Cambridge University’s Department of Psychology looked at the decisions made on 26,501 credit loan applications by 30 credit officers of a major bank over a month.

The officers were making decisions on “restructuring requests” – where the customer already has a loan but is having difficulty paying it back, so asks the bank to adjust the repayments.

By studying decisions made at a bank, the researchers could calculate the economic cost of decision fatigue in a specific context – the first time this has been done.

They found the bank could have collected around an extra $500,000 (£360,450) in loan repayments if all decisions had been made in the early morning.

Senior author Professor Simone Schnall, of Cambridge’s Department of Psychology, said: “Credit officers were more willing to make the difficult decision of granting a customer more lenient loan repayment terms in the morning, but by midday they showed decision fatigue and were less likely to agree to a loan restructuring request.

“After lunchtime they probably felt more refreshed and were able to make better decisions again.”

Decisions on loan restructuring requests are cognitively demanding: credit officers have to weigh up the financial strength of the customer against risk factors that reduce the likelihood of repayment.

Errors can be costly to the bank.

Approving the request results in a loss relative to the original payment plan, but if the restructuring succeeds, the loss is significantly smaller than if the loan is not repaid at all.

The study found that customers whose restructuring requests were approved were more likely to repay their loan than if they were instructed to stick to the original repayment terms.

Credit officers’ tendency to decline more requests around lunchtime was associated with a financial loss for the bank.

Tobias Baer, a researcher in Cambridge’s Department of Psychology and first author of the report, said: “Even decisions we might assume are very objective and driven by specific financial considerations are influenced by psychological factors.

“This is clear evidence that regular breaks during working hours are important for maintaining high levels of performance.”

The research is published in the journal Royal Society Open Science.