Understanding Traditional Installment Lending (Study Reviews)

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Understanding Traditional Installment Lending (Study Reviews)

Reviewing Four Important Public Studies

Promoting understanding of Traditional Installment Lending and the forces that shape its social, regulatory, and political environment, is NILA’s number one job. Only through understanding the nuances of lending can borrowers, lenders, regulators and others make beneficial decisions that avoid unintended consequences.

 The following four studies are among the most informative, technical treatments of the business of lending and the nature of regulation.

  1. How Do Small Dollar Non-Bank Loans Work? (Mercatus Center) (2019)

This is an important study for the understanding of nonbank credit in general and installment loans in particular, in that it provides a detailed overview of the landscape for small-dollar loans and examines a number of products, including NILA-style Traditional Installment Loans offered by nonbank consumer finance companies.

The study is strong on history, pointing out that specially licensed lenders, making installment loans at set rates, were established via the Uniform Small Loan Law of 1916, specifically to give borrowers a safe and affordable alternative to loan sharks, who before that had operated with impunity.

For more, click HERE.

To download the full study click HERE.

  1. State Laws Put Installment Loan Borrowers at Risk (Pew) (2018)

This study that installment loan payments create a pathway out of debt and, critically, are affordable for borrowers, generally falling below a (somewhat arbitrary) figure of 5 percent of monthly income.

It also finds that installment loans cost much less than other non-bank small dollar loan products “three to four times less expensive than using credit from payday, auto title, or similar lenders.”

Likewise, the finding that installment lenders can enable both lenders and borrowers to benefit echoes a point NILA has been making for years – only if the interests of borrower and lender are aligned, can demand be fulfilled through sustainable loans, made in a competitive environment.

For more, click HERE.

To view the full study click HERE.

  1. Consumer Borrowing after Payday Loan Bans (University of Chicago) (2016)

The study draws on both administrative and survey data to look at variation in payday-lending laws and the effects of restrictions. In short, the study finds that although these policies are effective at reducing payday lending itself, consumers simply respond by shifting to other forms of high-interest credit (for example, pawnshops or rent-to-own loans). This shifting was present, though less pronounced, for even the lowest-income payday loan users. This suggests that policies that target payday lending in isolation may be ineffective at reducing consumers’ reliance on high-interest credit.

These findings illustrate a point that NILA has made repeatedly in the past; that restricting access to credit has no effect on demand, and that safe, affordable alternatives must be available to meet demand, if laws aimed at banning products deemed to be unsafe are to avoid harming the people they are intended to protect.

 For more, click HERE.

To view the full study, click HERE.

  1. Effects of Illinois’ 36% Interest Rate Cap on Small-Dollar Credit Availability and Financial Well-Being (2023)

A working draft of an independent academic study of the effects of the 2021 Illinois Predatory Loan Prevention Act (PLPA),  finds that thousands of Illinois consumers no longer qualify for small dollar installment loans, leaving them without credit options.  The study also finds that if subprime borrowers do qualify for a small dollar loan, they do so only because the loan amount is for more than they otherwise may want or need.

For more, click HERE.

For the full study click HERE.


SOURCE: Various





2023-04-04T12:43:17+00:00 April 4th, 2023|Categories: News, Study Review|Tags: , , , , , , , , , , |Comments Off on Understanding Traditional Installment Lending (Study Reviews)