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Repossession and the Democratization of Credit

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  • Juliano J. Assunção
  • Efraim Benmelech
  • Fernando S. S. Silva

Abstract

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17858.

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Date of creation: Feb 2012
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Publication status: published as Benmelech, Efraim, Juliano Assuncao and Fernando S. S. Silva. Forthcoming. Repossession and the Democratization of Credit. Review of Financial Studies.
Handle: RePEc:nbr:nberwo:17858

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Cited by:
  1. Carrasco, Vinicius & Salgado, Pablo, 2014. "Coordinated strategic defaults and financial fragility in a costly state verification model," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 129-139.

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