Repossession and the Democratization of Credit

Juliano Assunção
Efraim Benmelech
Fernando S. S. Silva
Publication Type: 
Papers
Journal Name: 
The Review of Financial Studies
Journal Volume: 
Forthcoming
Publication Year: 
2014

We exploit a 2004 credit reform in Brazil that simplified the sale of repossessed cars used as collateral for auto loans. We show that the change has led to larger loans with lower spreads and longer maturities. The reform expanded credit to riskier, low-income borrowers for newer, more expensive cars. Although the credit reform improved riskier borrowers' access to credit, it also led to increased incidences of delinquency and default. Our results shed light on the consequences of a credit reform, highlighting the crucial role that collateral and repossession play in the liberalization and democratization of credit.

JEL Codes: 
G21,G28,K22
Region: 
Latin America/Caribbean
Country: 
Brazil
Topic: 
Risk
Topic: 
Credit
Topic: 
Policy Evaluation