Abstract
Traditionally, the lending of money in a bank-based financial system is controlled by banks. The rise of online Peer-to-Peer (P2P) lending markets that unite non-institutional borrowers and lenders is challenging the classical bank loan. By using a unique data set on loan contracts between borrowers and investors from Switzerland, we analyze the determinants of the P2P consumer loan interest rates – a research question that has not yet been analyzed empirically. In addition to the loan-specific and macroeconomic factors that significantly affect the interest rates, we also find some discrimination by the lenders. Furthermore, our results reveal that borrower-specific factors such as its economic status significantly influence lender evaluations of the borrower’s credit risk and thus the interest rates, especially as the market for P2P consumer loans matures.
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