Extreme temperature shocks drive up demand for high-cost credit while reducing payday loan availability and increasing defaults, according to research published August 24, 2026, in Nature Communications.
Economists Shihan Xie, Victoria Wenxin Xie, and Xu Zhang analyzed loan-level payday lending records to trace how severe weather conditions affect borrowing. They found that temperature shocks simultaneously expand credit demand, tighten lender availability, and worsen loan performance through higher delinquency and default rates.
To identify potential mechanisms, researchers examined borrower income information and compared outcomes between online lenders and storefront branches. Their findings show that extreme temperature events amplify financial strain for credit-constrained households, particularly because formal disaster assistance programs do not cover such weather events.
The investigation drew on the Gies Consumer and Small Business Credit Panel, a dataset created by Jialan Wang, Julia Fonseca, and Peter Han with support from the Gies College of Business. Minyoung Cho, Kyuseob Yu, and Mohammad Sadeghi provided research assistance. The authors previously presented their findings to seminar participants at the Bank of Canada, the 2024 CFPB Research Conference, the ASSA 2024 meeting, and the National Energy Assistance Directors Association Spring Meeting 2024.
Financial backing for the study came from the Sustainable Business Institute at Santa Clara University and the Alfred P. Sloan Foundation through the NBER Household Finance Small Grant Program. The paper, submitted on December 18, 2025, and accepted on August 11, 2026, noted equal contributions from all three authors, who declared no competing interests.
