The Capitalization of Consumer Financing into Durable Goods Prices
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%.
We thank the Editor (Amit Seru), the Associate Editor, and two anonymous referees. We also thank our discussants Tom Chang, Marco Di Maggio, Paul Goldsmith-Pinkham, Christopher Hansman, and John Mondragon, and workshop and conference participants at BYU, Cornell, Federal Reserve Board, Minnesota, MIT, Notre Dame, NYU, Philadelphia Fed, Princeton, Stanford SITE, UT Austin, University of Washington, Wash-ington University in St. Louis, FIRS, SFS Cavalcade, and Natalie Bachas, Eﬃ Benmelech, Shai Bernstein, Giovanni Favara, Vincent Glode, Brad Larsen, Greg Leiserson, Brigitte Madrian, Jonathan Parker, Antoinette Schoar, David Sraer, Jeremy Stein, Stijn Van Nieuwerburgh, and Emil Verner for helpful comments. We appreciate the research assistance of Lei Ma and Alex Tuft. The data were provided by an anonymous information-technology ﬁrm. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Taylor D. Nadauld
Taylor Nadauld has a financial interest in the anonymous financial services software company that provided the data for this project.
- When prospective buyers have access to longer-term loans with lower monthly payments, the transaction prices for automobiles increase...