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Carbon Pricing and Household Finance: How Banks Price Transition Risk in Auto Loans | ifo Institute We study the impact of carbon pricing on household finance using European microdata on loans for internal combustion engine vehicles. Exploiting cross-country variation in the same car models with a difference-in-differences design, we find that banks respond to Germany's carbon price announcement by raising interest rates by 0.5 percentage points, with larger increases for loans on fuel-intensive vehicles and for longer maturities. Banks also shorten loan maturity, reduce amounts, and shift to linear repayments, while households choose more fuel-efficient new cars. Captive banks respond more strongly than commercial banks. Collateral and default risk channels jointly explain these adjustments, highlighting household finance as a key transmission channel of climate policy. https://www.ifo.de/en/cesifo/publications/2025/working-paper/carbon-pricing-and-household-finance-how-banks-price-transition