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% to 90% of the monthly
payment increase. Most of this is driven by shifting toward lower-quality cars, but
affected borrowers offset 20% to 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 car's price by 2.8%.

Keywords: credit supply, durable goods, loan maturity

JEL Classification: E31, E43, E51, G21, H22, L11, L62

Suggested Citation: Suggested Citation

Argyle, Bronson and Nadauld, Taylor and Palmer, Christopher and Pratt, Ryan, The Capitalization of Consumer Financing into Durable Goods Prices (January 30, 2020). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3191443