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The unsecured personal loan (UPL) market is a multi-billion dollar market where numerous financial institutions compete. Due to the development of online banking, loan applicants start to compare numerous loan products. They aim for high loan limits and low interest rates. Since loan applicants have a desired loan amount, institutions instead focus on adjusting interest rates. Despite the importance of determining optimal interest strategies, institutions have traditionally relied on heuristic methods by human experts to set interest rates. This is done by adding a target return on assets (ROA) to the applicant's expected default probability predicted by a credit scoring system (CSS) such as the FICO score.
Jee et al. (Sat,) studied this question.