Employing an unique data set comprising near all U.K. cash advance applications in 2012вЂ“13, coupled with consumer credit files, we estimate the effect of pay day loan use on customers during the margin of firm financing choices. We use an RD research design that exploits lender-specific credit history discontinuities.
We discover that cash advance usage causes customers to try to get 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 non-payday credit increases, specially for signature loans. The probability of delinquency on non-payday financial obligation increases. After a little one-month decrease, pay day loan use persistently escalates 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.