Institutional Affiliation: Vanderbilt University
|Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?|
with , : w14659
Using a unique dataset matched at the individual level from two administrative sources, we examine household choices between liabilities and assess the informational content of prime and subprime credit scores in the consumer credit market. First, more specifically, we assess consumers' effectiveness at prioritizing use of their lowest-cost credit option. We find that most borrowers from one payday lender who also have a credit card from a major credit card issuer have substantial credit card liquidity on the days they take out their payday loans. This is costly because payday loans have annualized interest rates of at least several hundred percent, though perhaps partly explained by the fact that borrowers have experienced substantial declines in credit card liquidity in the year leading ...
Published: Agarwal, Sumit, Paige Marta Skiba, and Jeremy Tobacman. "Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?" American Economic Review 99, 2 (2009): 412-417. citation courtesy of