Collateral Damage: Low-Income Borrowers Depend on Income-Based Lending

Presented at the ASSA 2024 Annual Meeting.

84 Pages Posted: 21 Jun 2022 Last revised: 23 Feb 2024

See all articles by Mark J. Garmaise

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management

Mark Jansen

University of Utah - Department of Finance

Adam Winegar

BI Norwegian Business School

Date Written: January 29, 2024

Abstract

We use negative durability shocks from vehicle discontinuations to study asset-backed lending (ABL) and income-based lending (IBL) in auto finance. Discontinuations lead to increased down payments, higher loan-to-value ratios and larger post-default personal recoveries. These results all indicate that economically disadvantaged consumers are relatively more reliant on unsecured IBL, in stark contrast to corporate financing patterns. Vehicle recoveries on discontinued cars are lower for borrowers who purchase after discontinuations, implying that depreciation is partially borrower-dependent. The securitization-driven rise of ABL may hamper the relative credit access of IBL-reliant lower-income borrowers.

Keywords: Consumer lending, collateral, durability, financial constraints, financing capacity

JEL Classification: G51, G23

Suggested Citation

Garmaise, Mark J. and Jansen, Mark and Winegar, Adam, Collateral Damage: Low-Income Borrowers Depend on Income-Based Lending (January 29, 2024). Presented at the ASSA 2024 Annual Meeting., Available at SSRN: https://ssrn.com/abstract=4132810 or http://dx.doi.org/10.2139/ssrn.4132810

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Mark Jansen (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
1655 Campus Center Dr.
Salt Lake City, UT 84112
United States
801-213-6910 (Phone)

HOME PAGE: http://eccles.utah.edu/team/mark-jansen/

Adam Winegar

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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