Borrowing High vs. Borrowing Higher: Sources and Consequences of Dispersion in Individual Borrowing Costs

Victor Stango and Jonathan Zinman

No 19069, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document cross-individual variation in U.S. credit card borrowing costs (APRs) that is large enough to explain substantial differences in household saving rates. Borrower default risk and card characteristics explain roughly 40% of APRs. The remaining dispersion exists because a borrower can receive offers and hold cards with wide-ranging APRs, as different issuers price the same observable risk metrics quite differently. Borrower debt (mis)allocation across cards explains little dispersion. But self-reported borrower search/shopping (along with instruments for shopping implied by Fair Lending law) can explain APR differences comparable to moving someone from the worst credit score decile to the best.

JEL-codes: D14 D22 D4 D83 G21 G23 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-ban
Note: IO LE
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Citations: View citations in EconPapers (10)

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