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Screening on loan terms: evidence from maturity choice in consumer credit

Hertzberg, Andrew, Liberman, Andres and Paravisini, Daniel (2018) Screening on loan terms: evidence from maturity choice in consumer credit. Review of Financial Studies, 31 (9). pp. 3532-3567. ISSN 0893-9454

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Identification Number: 10.1093/rfs/hhy024

Abstract

We exploit a natural experiment in the largest online consumer lending platform to provide the first evidence that loan terms, in particular maturity choice, can be used to screen borrowers based on their private information. We compare two groups of observationally equivalent borrowers who took identical unsecured 36-month loans; for only one of the groups, a 60-month loan was also available. When a long-maturity option is available, fewer borrowers take the short-term loan, and those who do default less. Additional findings suggest borrowers self-select on private information about their future ability to repay.

Item Type: Article
Official URL: https://academic.oup.com/rfs
Additional Information: © 2018 Oxford University Press
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
Sets: Departments > Finance
Date Deposited: 26 Feb 2018 10:59
Last Modified: 23 Jan 2019 20:48
URI: http://eprints.lse.ac.uk/id/eprint/86859

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