Could Peer-to-Peer Loans Substitute for Payday Loans?
Accounting & Taxation, v. 4 (2) p. 77-94, 2012
18 Pages Posted: 13 Mar 2014
Date Written: 2012
Many consumer advocates consider payday loans — short-term, uncollateralized loans with high interest rates — to be predatory. The demand for short-term funding has spurred the quest for a substitute, an effort encouraged and supported by regulators like the Federal Deposit Insurance Corporation. In this paper, we evaluate the potential for online peer-to-peer markets to provide this alternative. We conclude that while certain features of peer-to-peer loans would be well suited (such as their longer terms, larger amounts, and multiple payments), the longer time to fund and the required minimum credit scores for borrowers present meaningful hurdles.
Keywords: Fringe Lending, Payday Loans, Peer-to-Peer Loans
JEL Classification: G18, G21, G28
Suggested Citation: Suggested Citation