Consumer Loans, Heterogeneous Interest Rates, and Inequality

Marco Bonomo, Tiago Cavalcanti, Fernando Chertman, Amanda Fantinatti, Andrew Hannon and Cezar Santos

No 614, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Consumer loans are key for consumption smoothing. But what if individuals who need them the most find it harder to access these loans? We examine this question empirically and quantitatively, using Brazilian credit registry and matched employer-employee data. Low-income individuals face higher interest rates, even after controlling for several risk factors and characteristics. Our model includes life-cycle dynamics, different credit types, occupations, and income shocks with endogenous default. According to the calibrated model, reforms reducing loan interest rate spreads could significantly benefit individuals, especially young and poor informal workers. The pro-competition 2013 Loan Portability reform increased welfare by 0.2% of annual consumption.

Date: 2025-01
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Working Paper: Consumer Loans, Heterogeneous Interest Rates, and Inequality (2025)
Working Paper: Consumer Loans, Heterogeneous Interest Rates, and Inequality (2025)
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