“Time to Repay or Tim to Delay? The Effect of Having More Time Before a Payday Loan Is Due,” an article co-authored by Paige Marta Skiba, has been published in the American Economic Journal: Applied Economics. Co-authors include Sarah Payne Carter (BA’17, financial economics), Kuan Lui and Justin Sydnor.
This study examines 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. Neo-classical models predict that this “grace period” would reduce borrowers’ need for costly loan rollovers. But in reality, borrowers’ repayment behavior with grace periods is very similar to that of borrowers with shorter loans. A calibrated model suggests that present-focused borrowers get less than half the benefit from a grace period that time-consistent borrowers would gain.
