Just How Do Payday Advances Affect Borrowers? Evidence through the U.K. Market

Payday advances are controversial high-cost, short-term financial products, prohibited in a lot of U.S. states. But debates surrounding their advantages to consumers carry on. We review the results of payday advances on customers by utilizing a unique information set including 99% of loans authorized in the uk more than a two-year duration matched to credit files. Utilizing a regression discontinuity research design, our outcomes show that payday advances offer short-lived liquidity gains and encourage consumers to battle extra credit. Nevertheless, within the months that are following pay day loans cause persistent increases in defaults and cause consumers to meet or exceed their bank overdraft limitations.

Loan-Level Information

Information from payday loan providers

The FCA data comprise loan-level records for applications to U.K. payday loan providers from January 1, 2012, to December 31, 2013, including first-time and repeat applications. For thirty-seven lenders running into the cash advance market, whom together constitute 99% associated with the total market by loan amount, the information includes documents of effective loan requests and loan performance (including information about standard and belated payments). Read the rest of this entry