How Does Bonus Payment Affect the Demand for Auto Loans and Their Delinquency?
43 Pages Posted: 25 Jan 2018 Last revised: 22 Jun 2020
Date Written: June 21, 2020
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
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