Auto Loan Intermediation

Abstract

This paper evaluates the intermediation of auto loans through auto dealers, using new and comprehensive administrative data. The arrangement between dealers and banks might lower the cost of loans for consumers, because dealers typically obtain rate quotes from many more lenders than consumers would. However, the institution also gives discretion to dealers about the interest charges paid by consumers. Therefore, dealer intermediation forces buyers to keep track of relevant car and loan attributes at the same time, which might allow dealers to extract extra surplus from boundedly rational consumers. Our project leverages detailed institutional knowledge to show that consumers are relatively less responsive to financial charges. Furthermore, we study how this wedge in responsiveness plays out in a competitive market if dealers price the car and the loan jointly.