Just How Do Pay Day Loans Affect Borrowers? Proof through the U.K. Market

Just How Do Pay Day Loans Affect Borrowers? Proof through the U.K. Market

Abstract

Pay day loans are controversial high-cost, short-term financial products, prohibited in several U.S. states. But debates surrounding their advantages to consumers carry on. We evaluate the results of payday advances on consumers by utilizing a unique information set including 99% of loans approved in the uk over a period that is two-year 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 credit that is additional. But, into the months that are following pay day loans cause persistent increases in defaults and cause customers to meet or exceed their bank overdraft limitations.Continue reading