Racial Disparities in the Auto Loan Market

Abstract

We document racial disparities in auto lending. Combining credit bureau records with borrower characteristics, we find that Black and Hispanic applicants’ approval rates are 1.5 percentage points lower, even after controlling for creditworthiness. In aggregate, this effect crowds out 80,000 minority loans each year. Results are stronger where racial biases are more prevalent and lending competition is lower. Minority borrowers pay 70-basis-point higher interest rates, but default less ceteris paribus, consistent with racial bias rather than statistical discrimination. A major antidiscrimination enforcement policy initiated in 2013, but halted in 2018, reduced unexplained racial differences in interest rates by 60%.