Work

Extreme temperatures and low-income household finance: evidence from payday loans

Year: 2026

Type: article

Abstract: Extreme temperature shocks, intensified by climate change, are becoming increasingly frequent and severe, yet their effects on household credit conditions remain underexplored. Using loan-level payday lending data, we show that extreme temperature shocks increase demand for high-cost credit, reduce payday loan credit availability, and worsen loan performance through higher delinquency and default rates. We explore potential mechanisms using borrower income information and differences between online and storefront lenders. Our findings reveal how extreme temperature events can amplify financial vulnerability among credit-constrained households, particularly in the absence of formal disaster assistance for such events. This study finds that extreme heat increases demand for payday loans, while reducing access to credit and raising default rates. This suggests that heat shocks can deepen financial strain among low-income households.

Source: Nature Communications

DOI: 10.1038/s41467-026-76945-y

Authors: Shihan Xie, Victoria Wenxin Xie, Xu Zhang

Institutions: University of Illinois Urbana-Champaign, Santa Clara University

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Climate action, No poverty

Open Access status: gold

Estimated APC paid: $6,990