Determinants of Short-term Consumer Lending Interest Rates
One of the most striking characteristics of the short-term consumer lending industry is the high level of interest rates. This study tests a theory of consumer lending interest rates in which fixed processing costs of short-term loans are the main determinant of interest-rate levels. I perform empirical tests using store-level data from payday and title lenders in the State of Utah from 2010, combined with zip-code level socioeconomic data from the U.S. Census Bureau and the Internal Revenue Service representing potential borrowers. I find that competition among lenders reduces average interest rates and that riskiness of borrowers, as measured by defaults, increases average interest rates. I also fnd that short-term consumer interest rates have a nonlinear and significant relationship to average income, consistent with anecdotal evidence from the payday lending industry but inconsistent with the hypothesis that short-term consumer lenders prey upon the poor. Lastly, I find no evidence that race or eduction affect the short-term lenders' interest rates.
|Date of creation:||Aug 2012|
|Contact details of provider:|| Postal: 130 Faculty Office Building, P.O. Box 22363, Brigham Young University, Provo, Utah 84602|
Phone: (801) 422-2859
Fax: (801) 422-0194
Web page: https://economics.byu.edu/Pages/MacroLab/Home.aspx
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brian T. Melzer, 2011. "The Real Costs of Credit Access: Evidence from the Payday Lending Market," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 517-555.
- Sumit Agarwal & Paige M. Skiba & Jeremy Tobacman, 2009. "Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?," NBER Working Papers 14659, National Bureau of Economic Research, Inc.
- Burkey, Mark L. & Simkins, Scott P., 2004.
"Factors Affecting the Location of Payday Lending and Traditional Banking Services in North Carolina,"
The Review of Regional Studies,
Southern Regional Science Association, vol. 34(2), pages 191-205.
- Burkey, Mark L. & Simkins, Scott P., 2004. "Factors affecting the location of payday lending and traditional banking services in North Carolina," MPRA Paper 36043, University Library of Munich, Germany.
- H. Damar, 2009. "Why Do Payday Lenders Enter Local Markets? Evidence from Oregon," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(2), pages 173-191, March.
- Charles Calomiris & Thanavut Pornrojnangkool, 2009. "Relationship Banking and the Pricing of Financial Services," Journal of Financial Services Research, Springer;Western Finance Association, vol. 35(3), pages 189-224, June.
- Charles Calomiris & Thanavut Pornrojnangkool, 2006. "Relationship Banking and the Pricing of Financial Services," NBER Working Papers 12622, National Bureau of Economic Research, Inc.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
- Edward C. Lawrence & Gregory Elliehausen, 2008. "A Comparative Analysis Of Payday Loan Customers," Contemporary Economic Policy, Western Economic Association International, vol. 26(2), pages 299-316, 04.
- Scott Carrell & Jonathan Zinman, 2014. "In Harm's Way? Payday Loan Access and Military Personnel Performance," Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2805-2840.
- Scott Carrell & Jonathan Zinman, 2008. "In harm’s way? Payday loan access and military personnel performance," Working Papers 08-18, Federal Reserve Bank of Philadelphia.
When requesting a correction, please mention this item's handle: RePEc:byu:byumcl:201207. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kerk Phillips)
If references are entirely missing, you can add them using this form.