One reason lenders usually require a lot of information from loan applicants is to avoid:

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The problem of adverse selection occurs when a lender doesn't have enough information about a borrower's creditworthiness, which can lead to the lender being more likely to approve loans to risky borrowers who are more likely to default. Lenders require a lot of information to mitigate this problem and ensure they are lending to creditworthy borrowers.

One Reason Lenders Usually Require a Lot of Information from Loan