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Business Growth

The Value in Used Leasing

The auto industry is changing – again. If you’re like me, you probably feel whiplash from all the changes that have affected the automotive industry in the last few years. From pandemic shutdowns and parts shortages to sky-high interest rates, automotive lenders have faced the challenge of auto loan portfolios continuously testing the boundaries of risk mitigation.

The Wall Street Journal recently reported that the costs related to car ownership continue to outpace the consumer price index. Aside from insurance, gas, parking, and maintenance, the auto loan itself has reached epic proportion. According to the latest State of the Automotive Finance Market report from Experian, the average amount financed on a new vehicle for 2023 was $40,366 with an average monthly loan payment of $738 with loan terms up to 85+ months.

These costs alone are not sustainable for consumers or lenders. According to Credit Union Leasing of America, over-extension is one of the primary concerns for credit unions in the 2023 auto-finance landscape.

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Business Growth Economy

Accelerate Auto Loan Volume This Tax Season

Brien Joyce

2024 has begun in an interesting fashion. Americans seem to be generally skeptical about the economy and their own financial well-being even though data reflects that the economy is actually quite robust. Consumers are spending briskly, which typically suggests optimism, not retrenchment. Inflation has tempered. Unemployment has been below 4% for 24 straight months, the longest such stretch since the 1960s. Despite these gains, many feel their long-term financial security is vulnerable to wide-ranging social and political threats, especially during this election year.

Some metrics reflect that consumer sentiment about the economy may be starting to improve. According to the University of Michigan monthly review, consumer sentiment recently posted the biggest two-month increase since 1991. Yet it remains about 20% lower than during the robust economy of early 2020, just before the COVID-19 pandemic started.

As lenders in the automotive market, this time of year is usually quite lucrative as buyers are in the market looking for deals. However, high interest rates and vehicle prices have kept many consumers on the sidelines.  The overall average auto loan interest rate was 7.03% for new cars and 11.35% for used cars in 2023’s third quarter, according to Experian. The average transaction price for a new vehicle in December was $48,759, according to Kelley Blue Book.

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Categories
Business Growth Economy

The Devil In Delinquencies

Experian’s Q3 State of the Automotive Finance Market Report revealed that 60-day auto loan delinquencies rose past pre-COVID levels, prompting concern for the auto lending industry. According to Fitch ratings, a record number of subprime borrowers are behind on auto loan payments by more than 60 days, hitting 6.11% in September. Vehicle repossession rates are also on the rise, leaving many without transportation. High delinquency and default rates mean lenders could face significant losses as they have more difficulty recouping funds.  

Another interesting data point is the scale of student loan debt compared to auto loan debt. In the first quarter of 2023, more than 43 million people in the U.S. were holding federal and private student loan debt, totaling more than $1.77 trillion overall. However, in September, the Wall Street Journal reported that the total amount of auto loan debt had surpassed student loan debt. At the end of Q2 2023, auto loan debt reached $1.58 trillion compared to $1.57 trillion in student loan debt.

Much of the loan debt can be attributed to the rise in car payments. According to Edmunds, the average new car payment in Q3 2023 reached $736 per month – a 4.6% increase over a year earlier.  Experian reports that three times as many people paid more than $1,000 monthly toward an auto loan. Think about how this trend line correlates with the rise in delinquencies.

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