making use of an unique information set comprising near all U.K. pay day loan applications in prosper personal loans loans 2012вЂ“13, coupled with consumer credit files, we estimate the effect of cash advance use on customers during the margin of firm financing choices. We use an RD research design that exploits lender-specific credit rating discontinuities.
We discover that cash advance usage causes customers to utilize for extra bank card and private loan credit within 6 months after loan acceptance that is payday. This leads to successful loan candidates taking right out more non-payday loans and total credit that is non-payday, specially for unsecured loans. The probability of delinquency on non-payday financial obligation increases. After a little decrease that is one-month cash advance use persistently advances the chance that the customer will go beyond the arranged overdraft limitation; the portion of non-payday loan balances in standard increases and customersвЂ™ credit bureau credit scores decrease.