Premium
The Capitalization of Consumer Financing into Durable Goods Prices
Author(s) -
ARGYLE BRONSON,
NADAULD TAYLOR,
PALMER CHRISTOPHER,
PRATT RYAN
Publication year - 2021
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12977
Subject(s) - capitalization , loan , payment , offset (computer science) , monetary economics , business , durable good , maturity (psychological) , shock (circulatory) , finance , economics , microeconomics , medicine , psychology , developmental psychology , philosophy , linguistics , computer science , programming language
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%.