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February 20, 2026

The effects of tariffs on consumer credit terms

The 2018 steel and aluminum tariffs increased interest rates on auto loans, especially for lower-income consumers.

Tyler Smith

Source: luckybusiness

Many studies of the Trump administration’s 2018 steel and aluminum tariffs have focused on whether they resulted in higher car prices. But a paper in the American Economic Review reveals other significant costs. Authors Kristine W. Hankins, Morteza Momeni, and David Sovich found that manufacturers also passed on tariff-related expenses to consumers through higher interest rates on auto loans and that this burden fell disproportionately on lower-income borrowers. 

To estimate the impact of tariffs on auto loans, the authors compared captive lenders—financing subsidiaries owned by auto manufacturers, such as Ford Credit and GM Financial—and independent lenders, such as banks and credit unions. While captive lenders are exposed to higher steel and aluminum costs through their parent companies, independent lenders have no direct connection to vehicle manufacturing. By comparing loan terms across these two types of lenders for identical vehicles and similar borrowers, the researchers isolated the effect of the 2018 tariffs on financing costs.

Figure 9 from the authors’ paper illustrates how financing costs varied across borrower characteristics between January 2017 and December 2018.

Figure 9 from Hankins et al. (2026)

Panel A displays the relationship between household income and increases in interest rates. Borrowers in the lowest income quartile experienced an average increase in captive interest rates of 37 basis points, while those in the highest income quartile faced an increase of only 17 basis points. 

Panel B shows a similar pattern across credit score quartiles. Although the trend is not perfectly monotonic, borrowers with lower credit scores generally experienced larger interest rate increases than those with higher scores. 

Overall, the researchers found that captive lenders raised interest rates by approximately 26 basis points compared to independent lenders, which translates to roughly $179 in additional loan payments per vehicle. They also estimated that interest rate pass-through was nearly two-thirds as large as vehicle price pass-through, suggesting that conventional analyses focusing solely on sticker prices understated tariff incidence by approximately 40 percent.

The 2018 tariffs were designed in part to protect American manufacturing workers, many of whom earn modest incomes. Yet these findings demonstrate that consumers with lower incomes bore a disproportionate share of the tariff burden through higher financing costs.