Payday loan customers who are approved on their first application are more likely to file for bankruptcy than those whose initial applications are denied, according to a study out of Vanderbilt Law School.
"Our research finds that payday loans and their interest payments may be sufficient to tip the balance into bankruptcy for a population that is already severely financially stressed," Assistant Professor Paige Marta Skiba said to the Vanderbilt University News Network.
Skiba and co-author Jeremy Tobacman report approved first-time applicants filed for bankruptcy within two years at almost twice the rate of those denied on their first application.
The study found that borrowers approved on their first application tended to continue borrowing. These borrowers applied for about five more loans within a year than rejected first-time applicants.
The research examined four years of data from a payday loan company in the state of Texas.
According to the study, more than 10 million American households borrow money through payday loans annually.
