Selection into Informative Consumer Credit Markets
48 Pages Posted: 5 Dec 2016 Last revised: 2 Jan 2019
Date Written: June 25, 2018
Recent technological innovation in credit markets has made it easier for households to access information about their cost of credit. We exploit a quasi-natural experiment in an online consumer credit market to identify which households take advantage of informative markets. In the setting studied, a lending platform switched from offering personalized loan prices to pricing by broad credit grades. We find that individuals with fewer years of experience in credit markets immediately and disproportionately exit the market, especially among riskier borrowers. We conclude that less experienced borrowers sort into markets that offer personalized information. Additional analysis confirms that their behavior is consistent with learning from personalized offers. Our results highlight the role of the growing fintech sector in allowing inexperienced households to learn about their costs of credit.
Keywords: consumer finance, household finance, fintech, peer-to-peer lending
JEL Classification: D12, D14, G20
Suggested Citation: Suggested Citation