Paper

Learning How To Borrow in a Fintech World:
Consumer Behavior When Search Costs Are (Near) Zero

Abstract

Online loan marketplaces are changing consumer lending. Here we investigate con
sumer behavior in these markets with near-zero search costs. Using administrative
data on 730,000 applications, 750,000 offers, and 200,000 individuals, together with
credit registry records, we document four facts. First, substantial within-applicant
dispersion in offered terms makes search highly valuable. Second, marketplace nudges mitigate choice complexity. Third, applicants search significantly, applying repeatedly, asking for different terms, and rejecting offers, in ways consistent with their credit worthiness. Fourth, dynamic adverse selection constrains search, as lenders penalize repeat applicants. Our findings highlight trade-offs between informational gains from search, and reputational and cognitive costs.