Employing an unique information set comprising near all U.K. cash advance applications, along with customer credit files, we estimate the effect of cash advance use on customers during the margin of firm financing choices. We use an RD research design that exploits lender-specific credit history discontinuities.
We discover that pay day loan usage causes customers to try to get extra bank card and private loan credit within half a year after cash advance acceptance. This leads to successful loan applicants taking right out more non-payday loans and total non-payday credit increases, especially for signature loans. But pay day loans cause deterioration in customer creditworthiness.