Does Loan Maturity Matter in Risk-Based Pricing? Evidence from Consumer Loan Data

Gabriela Kuvikova

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper investigates the role of loan contract terms in the performance of consumer credit. Taking advantage of a sample of accepted and rejected consumer loans from a Czech commercial bank, I estimate the elasticity of loan demand and find that borrowers with a high probability of default are more responsive to maturity than interest rate changes. I also argue that risk-based pricing may lead to an increase in loan maturity and loan default, rather than alleviating the adverse selection present on the lending market. Empirical evidence suggests that loan performance is time-dependent and default depends on the choice of loan duration.

Keywords: credit scoring; consumer loans, asymmetric information (search for similar items in EconPapers)
JEL-codes: D12 D14 D82 G21 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-ban, nep-cta and nep-tra
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Citations: View citations in EconPapers (2)

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