Do Fintech Firms Bring Lower Borrowing Costs? Evidence from the Us Unsecured Personal Loan Market

47 Pages Posted: 21 Jul 2023

See all articles by Ken Ueda

Ken Ueda

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Xinlei Shelly Zhao

Government of the United States of America - Office of the Comptroller of the Currency (OCC) - Risk Analysis Division

Abstract

Using unsecured personal loans from a credit bureau, we find that fintech firms bring lower borrower costs than the traditional lenders (i.e., banks and credit unions) in the medium to high credit score segments (i.e., credit score >670). Among subprime borrowers (i.e., credit score <670), fintech firms charge higher interest rates than traditional lenders, likely due to the adverse selection problem the lenders face. However, some subprime fintech borrowers still benefit from lower borrowing costs in the sense that their subsequent UPLs carry substantially lower APRs than their first UPLs from fintech firms, as new information about their credit quality is possibly revealed after the first UPLs are issued.

Keywords: G21, G23, G29, G51

Suggested Citation

Ueda, Ken and Zhang, Yan and Zhao, Xinlei, Do Fintech Firms Bring Lower Borrowing Costs? Evidence from the Us Unsecured Personal Loan Market. Available at SSRN: https://ssrn.com/abstract=4517249 or http://dx.doi.org/10.2139/ssrn.4517249

Ken Ueda (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Xinlei Zhao

Government of the United States of America - Office of the Comptroller of the Currency (OCC) - Risk Analysis Division ( email )

400 7th Street SW
Washington, DC 20219
United States

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