On the Convergence of Credit Risk in Current Consumer Automobile Loans

73 Pages Posted: 5 Dec 2022 Last revised: 13 Jan 2024

See all articles by Jackson P. Lautier

Jackson P. Lautier

Bentley University - Department of Mathematical Sciences

Vladimir Pozdnyakov

University of Connecticut - Department of Statistics

Jun Yan

University of Connecticut - Department of Statistics

Date Written: January 9, 2024

Abstract

Loan seasoning and inefficient consumer interest rate refinance behavior are well-known for mortgages. Consumer automobile loans, which are collateralized loans on a rapidly depreciating asset, have attracted less attention, however. We derive a novel large-sample statistical hypothesis test suitable for loans sampled from asset-backed securities to populate a transition matrix between
risk bands. We find all current risk bands eventually converge to a super-prime credit, despite remaining underwater. Economically, our results imply borrowers forwent $1,153-$2,327 in potential credit-based savings through delayed prepayment. We present an expected present value analysis to derive lender risk-adjusted profitability. Our results appear robust to COVID-19.

Keywords: Adjustable premium loans, competing risks, consumer finance, Coronavirus, financial literacy, Reg AB II

JEL Classification: C58, D11, D12, G32, G51, G53

Suggested Citation

Lautier, Jackson and Pozdnyakov, Vladimir and Yan, Jun, On the Convergence of Credit Risk in Current Consumer Automobile Loans (January 9, 2024). Available at SSRN: https://ssrn.com/abstract=4278917 or http://dx.doi.org/10.2139/ssrn.4278917

Jackson Lautier (Contact Author)

Bentley University - Department of Mathematical Sciences ( email )

Waltham, MA 02154
United States

HOME PAGE: http://https://jacksonlautier.com/

Vladimir Pozdnyakov

University of Connecticut - Department of Statistics

Jun Yan

University of Connecticut - Department of Statistics ( email )

Room 323, Philip E. Austin Building
215 Glenbrook Rd. U-4120
Storrs, CT 06269-4120
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
55
Abstract Views
430
Rank
684,898
PlumX Metrics