Risks of Long-Term Auto Loans

Journal of Credit Risk

43 Pages Posted: 3 Dec 2018 Last revised: 24 Aug 2022

See all articles by Zhengfeng Guo

Zhengfeng Guo

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Xinlei Shelly Zhao

Government of the United States of America - Office of the Comptroller of the Currency (OCC) - Risk Analysis Division

Date Written: June 12, 2018

Abstract


Long-term auto loans have become more popular in the last decade, and most auto loans have terms longer than five years after 2013. We find that the choice of long-term auto loans is associated with larger origination amounts and borrowers of long-term auto loans tend to be more credit constrained. After controlling for borrower risk factors available from the credit bureau data and macroeconomic conditions, we find that auto loans with terms beyond five years have higher delinquency rates than shorter-term loans during each year in their lifetimes. We further find that the yield curve among auto loans is inverted, and the interest rates for 6+ year auto loans have become increasingly lower compared to shorter-term auto loans over time.

Keywords: auto loans; loan terms; long-term auto loans; loan pricing

JEL Classification: G21

Suggested Citation

Guo, Zhengfeng and Zhang, Yan and Zhao, Xinlei, Risks of Long-Term Auto Loans (June 12, 2018). Journal of Credit Risk, Available at SSRN: https://ssrn.com/abstract=3290841 or http://dx.doi.org/10.2139/ssrn.3290841

Zhengfeng Guo

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Xinlei Zhao (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) - Risk Analysis Division ( email )

400 7th Street SW
Washington, DC 20219
United States

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