Analyzing the Relationship between Consumer Spending Habitsto Loan Default Risk: A Case of Istanbul Turkey

Abstract

The lending industry makes use of credit scoring models to classify consumers as potentially good or bad loan candidates. These credit scoring models often make use of a previous consumer's financial performance and demographics and not a consumer's money spending habits which can lead to loopholes in identifying new loan applicants as potentially having a high risk of loan default. This correlation study made use of four predictive variables, which were purchase of cigarettes, outdoor dining, entertainment, anxiety and distrust towards money and previous loan default to impart sufficient information in classifying consumers as good or bad applicants.

The survey data was obtained from online surveys, completed by 166 participants and analyzed using Pearson's correlation, logistic regression, linear regression analysis, Cronbach's alpha, analysis of variance and covariance with the IBM SPSS Statistics 28 software. The findings of this research revealed that there was no significant correlation between the four predictive variables and loan default risk.  This study showed that there is no significant relationship between the four predict variables and loan default risk, therefore money lending institutions may not include these variables in their loan applications.