How do payday loans affect borrowers?: evidence from the UK market

Gathergood, John, Guttman-Kenney, Benedict and Hunt, Stefan (2018) How do payday loans affect borrowers?: evidence from the UK market. Review of Financial Studies . ISSN 0893-9454

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Payday loans are controversial high cost, short-term lending products, banned in many US states. But debates surrounding their benefits to consumers continue. We analyse the effects of payday loans on consumers using a unique dataset including 99% of loans approved in the UK over a two-year period matched to credit files. Using a Regression Discontinuity research design, our results show payday loans provide short-lived liquidity gains and encourage consumers to take on additional credit. However, in the following months, payday loans cause persistent increases in defaults and cause consumers to exceed their bank overdraft limits.

Item Type: Article
Keywords: payday loan, sub-prime credit, consumer credit, financial distress
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
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Depositing User: Eprints, Support
Date Deposited: 11 Jul 2018 08:45
Last Modified: 04 May 2020 19:43

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