Rates for Vehicle Loans: Race and Loan Source

A household’s vehicle purchases are among its largest expenditure outlays. Moreover, unlike housing purchases, which a typical household may make once or twice over a lifetime, a household may well buy several cars over the same interval. The magnitude and relative frequency of vehicle purchases suggest that differential treatment by race in the vehicle market may have important implications for differences in wealth and financial wellbeing by race. Yet, whereas a robust literature in economics has studied virtually all aspects of racial treatment in the housing market, corresponding work about vehicles has been relatively sparse, with most work focusing on racial differences in prices paid (Pinelopi Goldberg (1996) and Fiona Scott-Morton, Florian Zettelmeyer, and Jorge Silva-Risso (2003)). Very little previous attention has been paid to whether there is differential racial treatment in another important outcome in the vehicle market: the interest rates that households pay on the loans used to purchase vehicles.1 Calculations using data from the Survey of Consumer Finances indicate that loans for vehicle purchases are primarily obtained from one of two sources. Roughly two-thirds of vehicle loans originate from the traditional banking sector: commercial banks, savings institutions, or credit unions. Vehicle manufacturers finance the remaining one-third of auto