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Get the Cash You Need in a Flash: Characteristics of Small-Dollar Credit Borrowers
Short Abstract
Consumers often face liquidity issues – having enough money to tide the family over until the next payday, meeting financial emergencies, managing cash flow irregularities, or needing help with bigger-ticket items such as appliances or used cars. And while small dollar credit (SDC) products can meet these liquidity needs, they are often criticized for their high implicit (or even explicit) interest rate and for committing consumers to a spiral of debt, especially for lower income households. In order to design better programs, products, and policies to help consumers meet their liquidity needs, it is important to understand the characteristics of the consumers who use these products and how these characteristics vary among the products. Therefore, the goal of this paper is to explore the factors associated with using SDC products – in particular, payday loans, deposit advance, pawn shops, vehicle title pawn and small dollar installment loans, plus combinations of these products. The effects of state policies regarding SDC products are of particular interest, especially given the recent growth in internet lending options.