How Does Bonus Payment Affect the Demand for Auto Loans and Their Delinquency?

43 Pages Posted: 25 Jan 2018 Last revised: 22 Jun 2020

See all articles by Zhenling Jiang

Zhenling Jiang

University of Pennsylvania - The Wharton School

Dennis Zhang

Washington University in St. Louis - John M. Olin Business School

Tat Chan

Washington University in St. Louis - John M. Olin Business School

Date Written: June 21, 2020

Abstract

Abstract We study how receiving a bonus changes the demand for auto loans and the risk of future delinquency. Unlike traditional consumer products, auto loans have a long-term impact on consumers’ financial state because of the monthly payment obligation. Using a large consumer panel data set of credit and employment information, we find that, receiving a bonus increases auto loan demand by 21 percent. These loans, however, are associated with a higher risk, as the delinquency rate increases by 18.5-31.4 percent depending on different measures. In contrast, an increase in the base salary will increase the demand for auto loans but not the delinquency. Our empirical findings help shed light on how consumers make financial decisions and have important implications for financial institutions on when demand for auto loans and the associated risk arise.

Keywords: Consumer Financial Decision Making, Bonus, Auto Loan Demand, Delinquency Risk

Suggested Citation

Jiang, Zhenling and Zhang, Dennis and Chan, Tat, How Does Bonus Payment Affect the Demand for Auto Loans and Their Delinquency? (June 21, 2020). Available at SSRN: https://ssrn.com/abstract=3101132 or http://dx.doi.org/10.2139/ssrn.3101132

Zhenling Jiang (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Dennis Zhang

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Tat Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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