Repossession and the Democratization of Credit

37 Pages Posted: 24 Feb 2012 Last revised: 27 Oct 2014

See all articles by Juliano J. Assunção

Juliano J. Assunção

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Fernando Souza Silva

affiliation not provided to SSRN

Date Written: February 2012

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.

Suggested Citation

Assunção, Juliano J. and Benmelech, Efraim and Silva, Fernando Souza, Repossession and the Democratization of Credit (February 2012). NBER Working Paper No. w17858. Available at SSRN: https://ssrn.com/abstract=2010390

Juliano J. Assunção (Contact Author)

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Efraim Benmelech

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Fernando Souza Silva

affiliation not provided to SSRN ( email )

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