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Relationships and Rationing in Consumer Loans

Sugato Chakravarty and James S. Scott
The Journal of Business
Vol. 72, No. 4 (October 1999), pp. 523-544
DOI: 10.1086/209626
Stable URL:
Page Count: 22
Subjects: Business Finance
Find more content in these subjects: Business Finance
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Relationships and Rationing in Consumer Loans
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We empirically examine how relationships between individual households and their creditors affect the probability of being credit‐rationed. Using a data set where the credit‐rationing of individual households is observed directly, we show that relationship duration and the number of activities between a family and a potential lender significantly lower the probability of being credit‐rationed. Additionally, we examine the relative role of relationships in determining the interest rates of two consumer loans—a mortgage loan and a “special purposes” loan—and show that mortgage loan rates are driven less by relationship factors than the special purposes loan rates.