Installment Loans Research Articles

Installment Loans

Installment Loans

Could Coaching Improve Consumer Credit Use Behavior? Evidence From a State Program

Financial coaching, a hands-on financial wellness approach, has emerged as a go-to strategy to help clients establish and reach their personal financial goals. We analyzed the borrowing and repayment behavior of 1,790 clients who received financial coaching through a program sponsored by the state of Delaware. Relative to a matched comparison group, financial coaching clients cure 0.24 more delinquent accounts, reduce credit card utilization by 5 percentage points, reduce the number of debts in collections by an additional 0.37 accounts, and have $422 less in credit card debt. Findings also show a 7 percentage point increase in the share of clients with a credit card and a 6 percentage point increase in the share of clients with a student loan. We do not see consistent differences in personal installment loans or mortgage holding. These estimates provide evidence that financial coaching can provide benefits for clients while being provided on a state-wide scale, illustrating the potential of public–private programs to provide services.

Installment Loans

Installment Loans

The cost of rate caps: Evidence from Arkansas

AbstractRegulated small‐dollar installment lenders do not operate within Arkansas, but they do in all six states that border Arkansas. We can measure the effects of Arkansas' 17% interest rate cap because Arkansas residents obtain installment loans only from out‐of‐state lenders. On average, Arkansas residents borrow $1051 at an annual percentage rate of 93%, when incorporating travel costs. Arkansas residents borrow at a rate of 90.4 loans per 10,000 people, compared to 524.5 per 10,000 for residents of the six bordering states. Residents in Arkansas counties that border other states hold 96.7% of out‐of‐state‐supplied small‐dollar installment loans. Statistical tests confirm that the interest rate cap affects residents in the interior counties of Arkansas more than it does residents in the perimeter counties.

Assessing the Quality of Self-Reported Financial Information

Abstract It is well known that self-reported financial information differs from administrative records. This article advances previous studies by using a unique matched representative sample of individual borrowers from the Chilean Household Finance Survey with administrative banking loan records. Our linked dataset allows us to test whether the differences between the two sources are due to the number of nonreported loans or to differences in the reported loan amounts. We show that discrepancies in debt ownership are larger when respondents have a mortgage and are not the highest income member of the family, when respondents have weak financial literacy and do not have confidence in the study, and when respondents live in complex or multigenerational households. However, borrowers report the maturity of their mortgage and installment loans quite accurately. Concerning loan amounts, differences between the two sources decrease with the financial literacy of the respondent. Finally, a simple form of rounding can go a long way towards explaining differences in the middle part of the debt amount and maturity distributions.

Analysis of the Application of Management Control System for Fiduciary Installment Credit (KREASI) at PT Pegadaian Medan City Region

Management control system is a system used to influence its members to implement strategies efficiently and effectively in order to achieve organizational goals. The purpose of this study was to determine how the implementation of the management control system at PT Pegadaian Medan City Region. PT. Pawnshops also require a control in order to achieve the company's overall goals. This control is preventive and repressive control. To achieve this goal requires a good management control system so that the credit is not problematic. The purpose of this study is the application of a management control system for the distribution of Fiduciary Installment Loans (KREASI) at PT Pegadaian Manado City Region. The analytical method used is descriptive analysis. The results of the analysis show that the process of providing Installment Loans for the Fiduciary System (KREASI), at PT. The Manado Regional Pawnshop has been carried out well by competent employees in their respective fields who have high honesty and dedication in carrying out their duties. Separation of duties has also been carried out well in each process of providing Fiduciary Installment Loans (KREASI), at PT. Manado Regional Pawnshop. PT Pegadaian Manado Region has implemented proper authorization procedures in all processes of providing Fiduciary Installment Loans (KREASI), namely at the time of the mortgage loan application process, the authorized officer is the estimator, during the pawn credit analysis process the authorized officer to analyze credit is the Power of Attorney Credit (KPK), during the credit withdrawal process the authorized officer is the cashier, while for the monitoring process the officer authorized to carry out supervision is the branch head

Blood Money: The Financial Implications of Plasma Sales for Individuals and Non-Bank Lenders

In the United States, households donate plasma for compensation at a higher rate than they use payday, auto-title, rent-to-own, or pawn loans. Our paper is the first to explore the financial implications for households of plasma donation. Plasma donors tend to be younger and less educated with lower incomes and credit scores; they are also more reliant on non-bank credit. We use dramatic growth in plasma centers between 2014 and 2021 to study the causal effect of the ability to donate plasma on non-bank credit. We find that access to a plasma donation center reduces demand (inquiries) for payday and installment loans by 6.5% and 8.1%, respectively, with larger effects (13.1% and 15.7%, respectively) on younger borrowers. Moreover, foot traffic increases by 7-10% at essential and non-essential goods establishments when a new plasma center opens nearby. Our findings suggest that plasma donation helps households smooth consumption without appealing to high-cost debt.

Measuring the Consequences of a Binding Interest Rate Cap on Small-Dollar Installment Loans

Regulated small-dollar installment lenders do not operate within Arkansas, but they do in all six bordering states. We can measure the effects of Arkansas' 17 percent interest rate cap because Arkansas residents obtain installment loans only from out-state lenders. On average, Arkansas residents borrow \$1,051 at an APR of 93 percent, when incorporating travel costs. Perimeter county residents hold 96.8 percent of out-state supplied small-dollar installment loans and interior county residents hold 3.2 percent. Robustness checks show that nonprime borrowers in the interior counties have less access to all sources of credit than do prime borrowers in the perimeter counties.

Does Increasing Access to Formal Credit Reduce Payday Borrowing?

The use of high cost “payday loans” among subprime borrowers has generated substantial concern among policymakers. This paper provides the first evidence of substitution between “alternative” and “traditional” credit by exploiting an unexpected positive shock to traditional credit access among payday loan borrowers: the removal of a Chapter 7 bankruptcy flag. We find that the removal of a bankruptcy flag on a credit report results in a sharp increase in access to traditional credit and raises credit scores, credit card limits, and approval rates. However, despite meaningful increases in access to traditional credit, we find no evidence that borrowers reduce their use of payday loans, and our confidence intervals allow us to rule out even very small reductions in payday borrowing. Furthermore, we find evidence that flag removals increase the use of other alternative credit products such as online subprime installment loans. These results indicate that marginally improving access to less expensive formal credit is insufficient to meaningfully shift borrowers away from high cost subprime products. We discuss likely explanations for this including increased marketing of subprime products associated with the flag removal, the imperfect substitutability between cash and credit for low income borrowers, and an insufficiency in the size of the increase in credit access associated with the flag removal. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Regulation and Recent Trends in High-Interest Credit Markets

In this article we review the contested effects of traditional payday loans on borrowers and describe recent regulatory changes to the product. We then provide detail on the institutional features and regulation—to the extent that there is any—of new products emerging to fill demand that remains when payday loans are more strictly regulated. Little is known about the effects of these new loan products on borrowers. What is certain is that state restrictions have led lenders to modify their loans to narrowly evade restrictions on interest rates, loan lengths, loan sizes, and repayment procedures like allowing loans to roll over. We focus on the starkest changes to small-dollar credit regulation that have occurred recently, including the development of high-interest installment loans, so-called flex loans offered by payday lenders, and the fintech creation of earned wage advance products.

DO CONSUMERS NEED MORE PROTECTION FROM SMALL‐DOLLAR LENDERS? HISTORICAL EVIDENCE AND A ROADMAP FOR FUTURE RESEARCH

We summarize the current debate surrounding four small‐dollar credit products: pawn loans, vehicle title loans, payday loans, and cash installment loans from finance companies. We review the contributions of scholars that inform this debate. We underscore that users of these products fit the description of those whom consumer credit models predict benefit from these products. Many studies find that, on average, consumer use of small‐dollar credit products is, at worst, innocuous. There are, however, findings of heterogeneity in borrowers' experiences. The disagreements surrounding these credit products and the difficulty in crafting the proper policy response stems from this heterogeneity. (JEL D18, G23)

Regulatory Arbitrage in the Retail lending Market

The aim of the article is to analyze the features of regulatory arbitrage between credit and microfinance organizations in the retail lending market in Russia and to develop proposals to improve existing regulations on the activities of professional lenders. The work employed the methods of analysis, synthesis, generalization, as well as comparative legal research. The author found that regulatory arbitration might aim to get benefit from imperfect legislation. Signs of regulatory arbitration may indicate the inefficiency and redundancy of current legislation concerning the regulation of consumer lending. The author developed the following recommendations : to reduce redundant regulation regarding the limits of the full loan value for point-of-sale loans and installment loans; to switch to licensing system of financial organizations, considering the scale of their activities and the produced risks.

PERANCANGAN SISTEM INFORMASI KEUANGAN PADA UNIT KOPERASI SIMPAN PINJAM

Research by the author at Cooperative Center District aims to determine the presence of data processing system finance especially in terms of savings and loans, installment loans and data processing cooperative members that was running at Cooperative Center District. Therefore, by implementing a new system that can optimize data processing system of finance in the savings and loans unit and can improve employee performances and improve the quality of higher cooperative. The research was conducted by collecting data, direct observation, and laboratory research in designing computer programs and the preparation of reports. The importance of the conclusion, with this new system will be able to assist the employee in performing data processing of finance in the savings and loans unit Cooperative Center and can provide information and reports quickly and as required.

АЛЬТЕРНАТИВНОЕ КРЕДИТОВАНИЕ МАЛОГО БИЗНЕСА В ПЕРИОД ЭКОНОМИЧЕСКОГО КРИЗИСА

The article considers alternative lending to small businesses as one of the ways out of the crisis situation. Alternative lending models such as direct private lending, market lending and crowdfunding platforms are reviewed. The types of alternative lending to small businesses (trade cash advances, short-term loans, credit line, invoice factoring, installment loans, equipment financing) are summarized. The advantages and disadvantages of alternative lending in comparison with bank loans and other traditional financing options are highlighted.

Rationality in the Consumer Credit Market: Choosing between Alternative and Mainstream Credit

Abstract A significant share of the population continues to rely on alternative financial services (AFS) outside the mainstream banking system to satisfy their credit needs. For instance, the most recent FDIC national survey (2017) shows that one-quarter of US households have used AFS in the last year. Skiba and Tobacman (2009) document that payday lenders have more storefronts in the United States than McDonald's and Starbucks combined and pawnbrokers continue to serve the financial needs of low-income families as they have done for centuries (Bos et al. (2012). Academics and policymakers are concerned about the use of AFS products, as they charge very high fees, have very high interest rates, and are susceptible to deceptive and predatory lending practices (Bhutta et al. (2015); Campbell et al. (2011); Morse (2011); Melzer (2011); Bhutta et al. (2015)). In this chapter we study the choice between uncollateralized mainstream credit (credit cards, credit lines, and installment loans) and alternative credit (pawn loans). Our objective is to test the conjecture that alternative credit markets are exploiting creditworthy borrowers by charging them high fees and interest rates. We have a very simple thought experiment in mind that will allow us to test the above conjecture. If we can back out the true underwriting model for a bank that issues uncollateralized mainstream credit and then test whether a borrower who generally takes out alternative credit can be approved for mainstream credit using this underwriting model, it would provide empirical proof for the statements made by academics and policymakers that consumers are making irrational decisions by taking out expensive loans. Alternatively, if borrowers using alternative credit cannot be approved for these mainstream loans, then it would appear that they are making a rational choice to access alternative credit despite the higher cost.

Loan Type and Debt Delinquency among Millennial and Non‐Millennial Households

This study used the 2016 Survey of Consumer Finances (SCF) and focused on whether holding different types of loans influenced debt delinquency among Millennial and non‐Millennial households. When the total sample was analyzed, there was a difference in debt delinquency between the two groups, and holding different types of loans was associated with debt delinquency. In subsample models, the logistic results showed that while auto loans’ effect on debt delinquency was negative, student loans and other installment loans’ effects on debt delinquency were positive for both groups. In addition, Millennials who held housing loans were less likely to be delinquent on debt payments overall. These findings have implications for debt management education and attention from policymakers in assisting households with a debt burden.

How Do Small-Dollar, Nonbank Loans Work?

Millions of Americans rely on small-dollar, non-bank-supplied credit products: payday, pawn, vehicle title, and personal installment loans from finance companies. Many features of these vital products, however, are not well understood. This book contains explanations of how these loans work, what features they share, and how they differ. Readers seeking to understand these products might learn something surprising. For example, pawn transactions are not loans in the traditional sense; interest rate caps influence the size of installment loans; and the length of a payday loan affects its annualized interest rate. This objective guide is a must-read resource for legislators, regulators, journalists, and anyone else who cares about access to, and regulation of, small-dollar credit.

Installment Loans

Installment Loans

ACCOUNTING FOR DEFERRED INSTALLMENT LOANS: SOME SUGGESTION ON VALUATION AND RECORDING APPROACHES

Bu çalışmanın amacı; taksit ertelemeli kredilerin ilgili muhasebe standartları çerçevesinde nasıl muhasebeleştirilmesi gerektiğini değerlendirmektir. Bu amaçla, çalışmada; muhasebe dönemi içerisinde temin edilen taksit ertelemeli bir kredinin doğurmuş olduğu maliyet (faiz) yükünün itfa edilmiş maliyet yöntemine uygun olarak birden fazla muhasebe dönemiyle nasıl ilişkilendirileceği ve finansal raporlamasının nasıl yapılacağı üzerinde durulmuştur. Ayrıca çalışmada konu kapsamına giren finansal olaylarda kullanımı söz konucu olabilecek iki farklı hesaplama yaklaşımına ek olarak, iki farklı kayıtlama tarzı önerisinde bulunulmuştur.

Relative prices and product substitution: Evidence from shocks to consumer credit interest rates

This study examines the borrowing patterns resulting from product substitution in consumer credit. Based on a unique dataset with monthly data on fixed-rate installment and variable-rate revolving consumer credit, I find that borrowers are likely to substitute revolving credit for installment credit when the former is less costly according to a simple price-based decision rule. This effect is weaker for new clients. Borrowers who are likely to substitute revolving credit for installment credit are more likely to commit to minimum repayments, choose credit limits which resemble those of installment loans, and repay more than borrowers choosing revolving credit without applying that rule, thereby carrying less debt and paying less interest. These results shed new light on the potential consequences of product substitution in the credit market.