Determinants of Automobile Loan Default and Prepayment
Automobiles, meaning cars and light trucks, are the most commonly held nonfinancial assets among Americans. In 2001, the share of families that owned automobiles was over 84 percent—higher than the share that owned primary residences at 68 percent. Further, automobile ownership statistics are fairly stable across various demographic characteristics, such as income, age, race, employment, net worth and homeownership. So how do we pay for all these automobiles? Roughly three-quarters of automobile purchases are financed through credit, and loans for automobile purchases are one of the most common forms of household borrowing. In 2003, debt outstanding on automobile loans was over $1,307 billion. According to past studies on auto sales, third party financing (direct loans) accounts for the largest portion of the automobile credit market, with dealer financing (indirect loans) second and leasing third.