Payday Loan and Pawnshop Usage: The Impact of Allowing Payday Loan Rollovers

Abstract

Millions of US households rely on payday loans and pawnshops for short-term credit. Payday loan interest rates are as high as 25% per 2- to 4-week loans and individuals use a post-dated check to secure the loan. Pawnshop usage is available for anyone with collateral. This article examines whether individuals using payday loans in states where rollovers are allowed are more likely to also use pawnshops together with payday loans. I find that this is true for individuals who make less than $30,000, but it does not hold for those with higher levels of income. There may be some complementary relationships between payday loan rollovers and pawnshops for these lower-income individuals. These results are important when considering whether to allow payday loan rollovers.