Work

Collateral Damage: Low-Income Borrowers Depend on Income-Based Lending

Year: 2025

Type: article

Abstract: We use negative durability shocks from vehicle discontinuations to study asset-backed lending and income-based lending (IBL) in auto finance. Discontinuations lead to increased down payments, higher loan-to-value ratios, and larger post-default personal recoveries. These results all indicate that economically disadvantaged consumers are relatively more reliant on unsecured IBL, in stark contrast to corporate financing patterns. Vehicle recoveries on discontinued cars are lower for borrowers who purchase after discontinuations, implying that depreciation is partially borrower-dependent. Our findings suggest that lower-income borrowers, in particular, benefit from technologies that facilitate IBL, such as income monitoring.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109025102433

Authors: Mark Garmaise, Mark Jansen, Adam Winegar

Institutions: University of California, Los Angeles, University of Utah, BI Norwegian Business School

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: No poverty, Reduced inequalities, Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $3,550