The Online Lenders Alliance is committed to using fact-based, unbiased research that supports the growth of the financial services industry while appropriately protecting consumers from fraud and abuse and not limiting their access to credit.
Small-Dollar Installment Loans: An Empirical Analysis
Determining the need for and appropriate form of regulation requires an understanding of the current state of the small-dollar credit industry based on actual industry data. As a result, available studies based on anecdotes, consumer surveys, or outdated data, are inadequate to form the basis of regulatory decisions governing the industry.
“Small-Dollar Installment Loans: An Empirical Analysis” analyzes a large sample of 1.02 million installment loans to fill in the gaps of existing industry studies and promote a more informed discussion about appropriate regulation.
The study focuses on the shift from single-payment small-dollar loans, or what are considered traditional payday loans, to installment loans. Installment loans tend to have larger principal amounts and lower APRs than single- payment small-dollar loans, but like single-payment loans, installment loans cater to subprime borrowers who are often denied bank or credit card loans. Because there are no large-scale studies on installment loans, many of the proposed regulations of such loans are based on inapplicable, incomplete data.
The State of Online Short-Term Lending
In early 2015, the Online Lenders Alliance commissioned Bretton Woods, Inc. to conduct an update to last year’s statistical analysis of the customer and loan characteristics of online short-term loans.
The 2015 study includes:
• 15.3 million records from three specialty credit bureaus, covering a three-year period (2012-2014).
• 3.7 million single payment and installment loan records from seven lenders, covering a three-year period (2012-2014).
The intent of the study was to:
• Augment the credit bureau data with lender data to analyze both single pay and installment loan usage characteristics;
• Compare to the baseline data for single pay loans from the 2014 study;
• Comment on the salient trends from 2012 to 2014;
• Review the migration from single pay to installment loan products;
• Catalog and understand customer demographics and loan characteristics; and
• Comment on these initial customer and loan characteristics metrics.
Additionally, a study was conducted to review and discuss the underwriting techniques of participating lenders, including an analysis of ability to repay. Click below to read the study.
- 2015 Online Short-Term Lending Study Data Sheet
- 2015 Online Short-Term Lending Study Underwriting Fact Sheet
- 2015 Online Short-Term Lending Study Data and Underwriting