Screening on Loan Terms: Evidence from Maturity Choice in Consumer Credit

Andrew Hertzberg, Andres Liberman and Daniel Paravisini

No 18-5, Working Papers from Federal Reserve Bank of Philadelphia

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.

Keywords: Screening; Adverse Selection; Loan Maturity; Consumer Credit (search for similar items in EconPapers)
JEL-codes: D14 D82 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2018-01-31
New Economics Papers: this item is included in nep-ban and nep-mkt
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Citations: View citations in EconPapers (43)

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Journal Article: Screening on Loan Terms: Evidence from Maturity Choice in Consumer Credit (2018)
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DOI: 10.21799/frbp.wp.2018.05

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