Time to Repay or Time to Delay? The Effect of Having More Time before a Payday Loan Is Due
American Economic Journal: Applied Economics · 2022 · Susan Payne Carter、Liu Kuan、Paige Marta Skiba、Justin Sydnor
Abstract
We examine the effect of state laws on minimum payday loan durations that give some borrowers an additional pay cycle to repay their initial loan with no other changes to contract terms. Neoclassical models predict this “grace period” would reduce borrowers’ need for costly loan rollovers. However, in reality, borrowers’ repayment behavior with grace periods is very similar to borrowers with shorter loans, merely pushed out a few weeks. Potential explanations include heuristic repayment decisions and naïve present focus. A calibrated model suggests that present-focused borrowers get less than one-half of the benefit from a grace period that time-consistent borrowers would. (JEL G23, G51)