LPP_Feb2020_JFE.pdf (2.48 MB)
High-cost debt and perceived creditworthiness: evidence from the UK
journal contribution
posted on 2023-06-07, 07:43 authored by Andres Liberman, Daniel Paravisini, Vikram PathaniaWe show that high-cost debt exacerbates financial constraints by affecting lenders’ perception of credit risk. Using data from a high-cost lender in the UK, we show that high-cost credit reduces applicants’ credit score and future bank credit even though it does not affect future debt repayment. These effects are not present among borrowers who are already tagged as high risk at application, consistent with high-cost credit affecting lenders’ beliefs about borrowers’ creditworthiness. The results highlight a novel channel through which high-cost credit can harm consumers’ financial health: a self-reinforcing stigma of high risk.
History
Publication status
- Published
File Version
- Accepted version
Journal
Journal of Financial EconomicsISSN
0304-405XPublisher
ElsevierExternal DOI
Department affiliated with
- Economics Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2020-08-21First Open Access (FOA) Date
2023-01-19First Compliant Deposit (FCD) Date
2020-08-21Usage metrics
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