An Examination of Short-Term Borrowing in the United States

Abstract

This paper uses data from the Survey of Consumer Finances to determine the characteristics of people who obtained high-interest loans to meet their short-term financing needs. Results indicate that individuals who were denied credit in the past were one and a half times more likely to borrow from alternative lenders (e.g., payday loan lenders and loan financing companies) than were individuals who had not previously been denied credit. Educational attainment, income, and wealth were negatively associated with borrowing from alternative institutions. The likelihood that, given the current economic downturn, more consumers may have to migrate from conventional credit markets such as banks or credit unions to alternative credit markets for their borrowing needs leads to a discussion of the necessity for more information and education to vulnerable populations.

Keywords: Household Finance, Debt Management, Alternative Lending

JEL Classification: D14, H31