The Capitalization of Consumer Financing into Durable Goods Prices

Using loan-level data on millions of used-car transactions across hundreds of lenders, westudy the consumer response to exogenous variation in credit terms. Borrowers offeredshorter maturity decrease expenditures enough to offset 60% to 90% of the monthlypayment increase. Most of this is driven by shifting toward lower-quality cars, butaffected borrowers offset 20% to 30% of a monthly payment shock by negotiating lowerprices for equivalent cars. Our results suggest that durable goods prices adjust to reflectcredit terms even at the individual level, with one year of additional loan maturityincreasing a car's price by 2.8%