11.56 Direct versus indirect loans.
The previous four exercises describe a study of loans for buying new cars. The authors conclude that banks take higher risks with indirect loans because they do not take into account borrower characteristics when setting the loan rate. Explain how the results of the multiple regressions lead to this conclusion.
| Variable | ||
|---|---|---|
| Intercept | 15.89 | |
| Loan size (in dollars) | −0.0029 | 17.40 |
| Length of loan (in months) | −1.098 | 5.63 |
| Percent down payment | −0.308 | 4.92 |
| Cosigner (, ) | −0.001 | 1.41 |
| Unsecured loan (, ) | 0.028 | 2.83 |
| Total payments (borrower’s monthly installment debt) | −0.513 | 1.37 |
| Total income (borrower’s total monthly income) | 0.078 | 0.75 |
| Bad credit report (, ) | 0.039 | 1.76 |
| Young borrower (, ) | −0.036 | 1.33 |
| Male borrower (, ) | −0.179 | 1.03 |
| Married (, ) | −0.043 | 1.61 |
| Own home (, ) | −0.047 | 1.59 |
| Years at current address | −0.086 | 1.73 |
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