Love & Loans: The Effect of Beauty and Personal Characteristics in Credit Markets

Abstract

I find that beauty, race, age, and personal characteristics affect lenders decisions, once credit and employment history, homeownership, and other hard financial information are accounted for. Beautiful borrowers are 11.7% more likely to get a loan, pay similar interest rates as average looking borrower with the same credentials, but default more often. Black borrowers are significantly less likely to get a loan (-16.9%), pay similar rates as White borrowers, and they are more likely to default. These findings are consistent with taste-based discrimination of the unattractive, and statistical discrimination of black borrowers. However, minority borrowers with more lenders from areas of high racial prejudice face lower probability of getting funds and higher interest rates. More nuanced models of lender specialization could also explain the results.

Keywords: Beauty, Credit Markets, Discrimination, Soft Information

JEL Classification: G21, D10, J71