Lending Curve

The economy has been heavily featured in the news lately, with some pundits ringing the recession bell and others pointing to low unemployment and consumer confidence. Whichever way your divining rod is pointing, the fact remains that these economic indicators prompt savvy credit union lenders to be on alert.  

From a retail automotive standpoint, first quarter numbers are validating the forecasted plateau/slight downturn in both new and used sales. According to the first quarter Experian statistics, new vehicle registrations were down 100,000 as compared to Q1 2018. Used vehicle registration took a steeper dive, dropping by 300,000 versus the same time frame.

As context, quarterly auto loan balances reached a record high in Q1 2019, jumping 6.5% year over year. The average new loan also hit a record high, surpassing $32,000, reflective of the continued high cost of vehicles and lack of OEM incentives. The monthly payment amount on those loans also hit a record, passing the $550 mark across all loan types. The interest rate on all risk categories averaged over 6%. Credit may be cheap at the Federal Reserve lending window, but it is holding firm against pressure at the auto loan desk.

A few anomalies also appeared in Experian’s first quarter data. Surprisingly, new auto loan terms decreased while used terms increased in Q1 2019. It is likely that even with low unemployment in many areas of the country, job security and available discretionary income remains low. While longer term loans continued to dominate the market, new loans with shorter terms experienced growth. This factor may be attributed to a generational demographic. Millennials and GenZ tend to be debt averse, having experienced the fallout from the Great Recession first hand. As these consumers gain a credit history, they could become an interesting short term/low payment niche market if the data continues to follow the trend.