Distinguishing between Good and Bad Subprime Auto Loans Borrowers: The Role of Demographic, Region and Loan Characteristics
Journal Title: Review of Economics & Finance - Year 2017, Vol 10, Issue 4
Abstract
Research on subprime mortgages has recently been gaining momentum, but subprime auto loans have largely been ignored. By using a unique data set of a very large UK vehicle finance company, this study analyses secured loans extended to the subprime borrowers with impaired or limited credit history. It looks specifically at characteristics in relation to payment history, in order to determine what characteristics make a good or bad borrower. We conclude that married and divorced borrowers as well as borrowers living in low unemployment and relatively prosperous regions such as the South East and London are less likely to default compared to not married, furnished tenants or borrowers living in the North West of the UK who have a high probability of default. Similar to the prime loans, income of borrowers and defaults propensities are negatively associated. Loan and security characteristics with the most impact on default status are price and age of the automobile, effective interest rate measured by APR, loan-to-value (LTV) and term of the loan agreement. The results of this study will help in understanding subprime auto loans and borrowers as well as helping lenders to distinguish between good and bad subprime borrowers.
Authors and Affiliations
Yaseen Ghulam, Sophie Hill
Keywords
Related Articles
- EP ID EP258232
- DOI -
- Views 93
- Downloads 0
The Asymmetric Impact of Portfolio Mix on Bank Performance over the Business Cycle: U.S. and Canadian Evidence
We analyze the dynamic linkage between fee-based income and bank performance link-age in the aftermath of the crisis. Surprisingly, our time series approach suggests that the share of fee-based income keeps contributing...
Factors Affecting Alaska’s Salmon Permit Values: Evidence from Bristol Bay Drift Gillnet Permits
The effects of total earnings, total costs and mining exploration on permit prices in Alaska are investigated using an autoregressive distributed lag (ARDL) approach to cointegration. We take specific account of regional...
Sectoral Growth and Energy Consumption in South and Southeast Asian Countries: Evidence from a Panel Data Approach
This study examines the dynamic relationship between energy consumption and the three major sectoral outputs (agricultural, manufacturing and service) in thirteen South and Southeast Asian countries using a panel data fr...
Collateral Risk and Demographic Discrimination in Mortgage Market Equilibria
Observations of significant differences in loan terms between demographically distinct groups of borrowers are often interpreted as evidence of ethnic, racial or gender discrimination by lenders. We consider, in stark co...
A Mixtured Localized Likelihood Method for GARCH Models with Multiple Change-points
This paper discusses GARCH models with multiple change-points and proposes a mixture localized likelihood method to estimate the piecewise constant GARCH parameters. The proposed method is statistically and computational...