Deadly Subprime Credit

We document a significant relationship between subprime auto credit and road safety, with a one-standard-deviation increase in originations of such loans in a county being associated with a 5 percent increase in fatal crashes. The results are robust at various geographical levels and hold for nonfatal accidents. In contrast, we do not find such a relationship for prime auto or subprime mortgage lending. We exploit several important exogenous variations to the supply and demand of auto credit to examine the nature of this relationship. We then explore several channels through which the expansion of subprime auto credit may lead to deteriorated road safety. As traffic accidents often involve multiple vehicles and pedestrians, our results underscore an important negative externality of subprime credit that has been understudied.