Working Paper: NBER ID: w17858
Authors: Juliano J. Assuno; Efraim Benmelech; Fernando S. S. Silva
Abstract: We exploit a 2004 credit reform in Brazil that simplified the sale of repossessed cars used as collateral for auto loans. We show that the change has led to larger loans with lower spreads and longer maturities. The reform expanded credit to riskier, low-income borrowers for newer, more expensive cars. Although the credit reform improved riskier borrowers' access to credit, it also led to increased incidences of delinquency and default. Our results shed light on the consequences of a credit reform, highlighting the crucial role that collateral and repossession play in the liberalization and democratization of credit.
Keywords: credit reform; repossession; auto loans; Brazil; democratization of credit
JEL Codes: G21; G28; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2004 credit reform in Brazil (H81) | larger auto loans (G51) |
| 2004 credit reform in Brazil (H81) | lower spreads (G19) |
| 2004 credit reform in Brazil (H81) | longer maturities (G19) |
| 2004 credit reform in Brazil (H81) | democratized credit access (G21) |
| 2004 credit reform in Brazil (H81) | increased likelihood of late payments (G51) |
| 2004 credit reform in Brazil (H81) | increased defaults (G33) |