The Capitalization of Consumer Financing into Durable Goods Prices
Author(s)Argyle, Bronson; Nadauld, Taylor; Palmer, Christopher John; Pratt, Ryan
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Using loan-level data on millions of used-car transactions across hundreds of lenders, we study the consumer response to exogenous variation in credit terms. Borrowers offered shorter maturity decrease expenditures enough to offset 60% to 90% of the monthly payment increase. Most of this is driven by shifting toward lower-quality cars, but affected borrowers offset 20% to 30% of a monthly payment shock by negotiating lower prices for equivalent cars. Our results suggest that durable goods prices adjust to reflect credit terms even at the individual level, with one year of additional loan maturity increasing a car's price by 2.8%.
DepartmentSloan School of Management
Journal of Finance
Argyle, Bronson et al. "The Capitalization of Consumer Financing into Durable Goods Prices." Journal of Finance 76, 1 (October 2020): 169-210. © 2020 American Finance Association
Author's final manuscript