The company wants to understand the driving factors (or driver variables) behind loan default, i.e. the variables which are strong indicators of default. The company can utilise this knowledge for its portfolio and risk assessment.

If the applicant is likely to repay the loan, then not approving the loan results in a loss of business to the company If the applicant is not likely to repay the loan, i.e. he/she is likely to default, then approving the loan may lead to a financial loss for the company.

When a client applies for a loan, there are four types of decisions that could be taken by the client/company):

1.Approved: The Company has approved loan Application 2.Cancelled: The client cancelled the application sometime during approval. Either the client changed her/his mind about the loan or in some cases due to a higher risk of the client he received worse pricing which he did not want. 3.Refused: The company had rejected the loan (because the client does not meet their requirements etc.) 4.Unused offer: Loan has been cancelled by the client but on different stages of the process.