Presented at the Harvard Joint Center on Housing Symposium

Almost one-third of the 30 million U.S. households who are unbanked or underbanked borrow to pay for small-dollar, short-term needs. Though loans are typically obtained through payday lenders, rent-to-own centers, refund anticipation lenders, or any of a variety of other non-mortgage–related sources, the need for credit is not satisfied by these temporary solutions. Well-structured credit is essential to support a household’s ability to save, build a considerable credit history, and to facilitate crucial investments that can provide a foundation for other wealth-building activities. Unfortunately, there is a shortage of high-quality, small-dollar, short-term credit products in the marketplace today that help consumers to accomplish these goals. This paper explores the challenges these types of products face in order to identify business strategies and public policies that support the development of an efficient marketplace for premium short-term credit.

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