Payday loans are short-term loans geared toward working-class and lower middle-class households that possess access to bank accounts and can prove sustained employment. People may use them and other alternative credit instruments to deal with unexpected expenses or simply to make ends meet between paychecks. While the loans are expensive, they may be one of the only alternatives available to potential borrowers with poor credit history or a lack of credit history.

This study is motivated by a desire to gain a deeper understanding of the people  who use alternative credit instruments, such as payday loans. While there is a substantial literature on the dangers of payday loans, there is not enough solid data to explain why people use these instruments, how borrowers  perceive them, and what alternatives might be viable. Recent trends are especially in need of further study. For example, some evidence suggests that middle-class individuals are increasingly using payday loans, and little is known about the growing popularity of online payday loans. This project will seek to understand the needs, characteristics, and perceptions of borrowers, as well as how they use these products.

The Subprime Lending Data Exploration Project presents an opportunity to build knowledge about the population that uses payday loans, short-term installment loans, and other subprime lending instruments to make ends meet. This project is analyzing a dataset of mostly online, short-term loans provided by Clarity Services, Inc., a credit reporting agency focused on subprime borrowers and credit reporting activity from alternative financial services. The project will also survey and collect information from focus groups to better understand borrowers’ needs.