Title page
Contents
Abstract 2
1. Introduction 3
2. Data 7
2.1. The Experian AutoCount Data 8
2.2. The ABS-EE Data 8
2.3. The New York Fed/Equifax Consumer Credit Panel 9
3. Auto Loan Maturity 10
3.1. Recent and Historical Trends 10
3.2. Possible Factors That Propelled Longer Maturities 12
4. Term Structure of Auto Loans 13
4.1. Baseline Relationship 13
4.2. Anecdotal Evidence from Lenders' Rate Sheets 15
4.3. Understanding the Maturity-Interest Rate Relationship 16
4.4. Additional Robustness Analysis and Discussion 18
5. Stylized Facts of Auto Loan Prepayments 20
5.1. The Majority of Auto Loans Are Prepaid 20
5.2. What Loans Are Prepaid? 21
5.3. How Are Loans Prepaid? 26
5.4. Why Are Loans Prepaid? 27
5.5. Where Was the Money Coming From? 27
6. Two Puzzling Patterns 28
6.1. Why Do People Prepay Promotional Loans? 28
6.2. Why Borrow Long, Pay High, but Prepay? 30
7. Concluding Remarks 35
References 37
Table 1. Auto Loan Maturity and Interest Rate Levels 56
Table 2. Auto Loan Maturity and Interest Rate Spreads over Treasury Yields 57
Table 3. Robustness Analysis of the Term-Interest Rate Relationship: New Car Loans 58
Table 4. Share of Loans Prepaid by Contract Maturity and Loan Age 59
Table 5. Excess Interest Payments of Prepaid Loans 60
Table 6. Auto Loan Maturity Distribution for Subprime Borrowers at the Largest Lenders 60
Figure 1. Recent Trend of Average Auto Loan Maturity 40
Figure 2. Shift of Auto Loan Maturity Distribution 41
Figure 3. Average Age of Passenger Cars in Operation 42
Figure 4. Two Samples of Rate Sheets on Lender's Webpage 43
Figure 5. Maturity-Interest Rate Relationship at Large Lenders 44
Figure 6. Comparison with Guo, Zhang, and Zhao Estimates 45
Figure 7. Trends of Prepayments of Auto Loans 46
Figure 8. Prepayment Speed, by Maturity and Borrower Credit Score 47
Figure 9. Characteristics of Prepaid and Matured Loans (New Car Loans) 48
Figure 10. Comparing Relative Risk Ratios between Prepayment and Default 49
Figure 11. Last Payment to Loan Amount Ratio 50
Figure 12. Loan Balances around the Time of Paying Off the Auto Loan 51
Figure 13. Prepayment Speed of Loans with and without Promotional Interest Rate 52
Figure 14. Distributions of Monthly Payments around Key Integers and the General Distribution 53
Figure 15. Distributions of Monthly Payment-to-Income Ratio around Key Integers and the General Distribution 54
Figure 16. Distributions of Monthly Payment-to-Income Ratio around Key Integers and the General Distribution 55
Table A1. Auto Loans Characteristics By Contract Maturity 65
Table A2. Maturity-Interest Rate Relationship in Different Subsample Periods 66
Table A3. Correletions among Auto Loans Characteristics 66
Figure A1. Loan Maturity Distribution in the Experian and ABS-EE Data 61
Figure A2. Loan Maturity by Lender Type 62
Figure A3. Other Characteristics and Loan Interest Rates 63
Figure A4. Characteristics of Prepaid and Matured Loans (new car loans) 64