The Capitalization of Consumer Financing into Durable Goods Prices

71 Pages Posted: 13 Jun 2018

See all articles by Bronson Argyle

Bronson Argyle

Brigham Young University - Department of Finance

Taylor Nadauld

Brigham Young University

Christopher Palmer

MIT Sloan; National Bureau of Economic Research (NBER)

Ryan Pratt

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2018

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 60-90% of the monthly payment increase. Most of this is driven by shifting toward lower quality cars, but affected borrowers are able to offset 20-30% 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 given car’s price by 2.8%.

Suggested Citation

Argyle, Bronson and Nadauld, Taylor and Palmer, Christopher and Pratt, Ryan, The Capitalization of Consumer Financing into Durable Goods Prices (June 2018). NBER Working Paper No. w24699, Available at SSRN: https://ssrn.com/abstract=3194928

Bronson Argyle (Contact Author)

Brigham Young University - Department of Finance ( email )

United States

Taylor Nadauld

Brigham Young University ( email )

Provo, UT 84602
United States

Christopher Palmer

MIT Sloan ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ryan Pratt

Brigham Young University ( email )

640 TNRB
Provo, UT 84602
United States
(801) 422-1222 (Phone)

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