Working Paper: NBER ID: w24699
Authors: Bronson Argyle; Taylor D. Nadauld; Christopher Palmer; Ryan D. Pratt
Abstract: Using loan-level data on millions of used-car transactions across hundreds of lenders, we study the consumer response to exogenous variation in credit terms. Borrowers offered shorter maturity decrease expenditures enough to offset 60-90% of the monthly payment increase. Most of this is driven by shifting toward lower quality cars, but affected borrowers are able to offset 20-30% of a monthly payment shock by negotiating lower prices for equivalent cars. Our results suggest that durable goods prices adjust to reflect credit terms even at the individual level, with one year of additional loan maturity increasing a given car’s price by 2.8%.
Keywords: consumer financing; durable goods prices; credit terms; auto market
JEL Codes: E31; E43; E51; G21; H22; L11; L62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decrease in loan maturity (G21) | decrease in consumer expenditure on car purchases (D12) |
| decrease in loan maturity (G21) | decrease in car prices (R48) |
| decrease in consumer expenditure on car purchases (D12) | decrease in car prices (R48) |
| increase in loan maturity (G21) | increase in car prices (R48) |
| increase in interest rates (E43) | decrease in car purchase expenditure (D12) |