Vehicle lending market

A series of decompositions show that Blacks only pay higher financing terms on loans originated at vehicle finance companies for new car purchases. At both the mean and the median, Blacks who originate loan on a new car at a vehicle financing company pay over 100 basis points more than a comparable White. However, for loans originating on new cars at either banks or credit unions, and for loans originated on a used car regardless of the origination source, there are no statistically significant racial differences in financing terms. We find that all of these patterns survive the addition of controls to measure borrower credit-worthiness, controls for the length of the relevant loan, and controls for the price of the vehicle. In total, the results suggest the presence of differential treatment for loans originated on new cars at vehicle financing companies on the same order of magnitude of results found in some industry level analyses. Our results imply that Blacks who purchase new cars and have them financed at vehicle financing companies pay on the order of $5 to $7 a month more than a comparable White. However, we want to stress that the key result of this paper is that this behavior is not representative of the behavior found throughout the rest of the vehicle lending market.

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