Financial Institution Objectives & Auto Loan Pricing: Evidence from the Survey of Consumer Finances

52 Pages Posted: 4 Mar 2020 Last revised: 14 Jan 2021

See all articles by Jordan van Rijn

Jordan van Rijn

University of Wisconsin - Madison - Agricultural and Applied Economics; Credit Union National Association (CUNA); Center for Financial Security

Shuwei Zeng

Federal Home Loan Mortgage Corporation (FHLMC); University of Wisconsin - Madison - Agricultural and Applied Economics

Paul Hellman

affiliation not provided to SSRN

Date Written: January 13, 2021

Abstract

Prior studies of interest rate differentials between credit unions and commercial banks suffer from selection bias since they rely on data at the level of the financial institution or branch which cannot account for demand-side or loan-level characteristics. We improve on these studies by using household and loan-level data from the Federal Reserve’s Survey of Consumer Finances from 2001 to 2019. We find that, on average, households that receive auto loans from credit unions pay 0.70 percentage points less on interest rates for new vehicles—and 1.40 percentage points less on used vehicles—relative to observably similar households that receive auto loans from banks. The aggregated savings to credit union members is larger than the estimated value of the credit union corporate income tax exemption. Nonetheless, the benefit from lower auto loan rates is likely an underestimate of the true value to consumers of credit unions’ presence in the market.

Keywords: Credit unions; banks; automobile loans; household finance; interest rates

JEL Classification: G21, G23

Suggested Citation

van Rijn, Jordan and Zeng, Shuwei and Hellman, Paul, Financial Institution Objectives & Auto Loan Pricing: Evidence from the Survey of Consumer Finances (January 13, 2021). Available at SSRN: https://ssrn.com/abstract=3520630 or http://dx.doi.org/10.2139/ssrn.3520630

Jordan Van Rijn (Contact Author)

University of Wisconsin - Madison - Agricultural and Applied Economics ( email )

427 Lorch St.
Madison, WI 53706
United States

HOME PAGE: http://https://aae.wisc.edu/staff/vanrijn/

Credit Union National Association (CUNA) ( email )

5710 Mineral Point Rd
Madison, WI 53705
United States
6082153896 (Phone)

HOME PAGE: http://https://www.cuna.org/CUNA-Research-and-Policy-Analysis-Team/Jordan-van-Rijn/?EventID=23622406

Center for Financial Security ( email )

Madison, WI
United States

HOME PAGE: http://https://cfs.wisc.edu/2018/09/26/jordan-van-rijn/

Shuwei Zeng

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

University of Wisconsin - Madison - Agricultural and Applied Economics ( email )

United States

Paul Hellman

affiliation not provided to SSRN

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