Risks of Long-Term Auto Loans

43 Pages Posted: 3 Dec 2018

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 Currency Comptroller - Risk Analysis Division

Date Written: June 12, 2018

Abstract

Long-term auto loans have become increasingly popular in the past decade. We find that consumers use these loans to obtain larger auto loans with lower monthly payments. After controlling for the observed risk factors typically available during the underwriting process, auto loans with maturities beyond five years have higher delinquency rates than shorter termed loans during each year in their lifetimes. These findings suggest that the financial constraints faced by borrowers of long-term auto loans are not fully captured by the borrower characteristics readily observable. We further find that the yield curve among auto loans is inverted, suggesting that a significant fraction of relative credit risks among auto loans are not reflected in pricing.

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). 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 St. SW
Washington, DC 20219
United States
202-6495492 (Phone)

Xinlei Zhao (Contact Author)

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

250 E Street, SW
Washington, DC 20219
United States

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