The Capitalization of Consumer Financing into Durable Goods Prices
70 Pages Posted: 21 Jun 2018 Last revised: 28 Sep 2020
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The Capitalization of Consumer Financing into Durable Goods Prices
Date Written: January 30, 2020
Abstract
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