Tag: Experian

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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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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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Categories
Economy

Play to Your Strengths for Success

The end of 2023 is on the horizon and lending in the retail automotive market seems a bit topsy turvy. Let’s consider a few data points:

  • August jobs report reflected an additional 187,000 jobs – but the unemployment rate jumped unexpectedly.
  • The Federal Reserve has paused interest rate increases for the time being – but inflation rose 0.6 percent in August to 3.7 percent, its biggest monthly gain of 2023.
  • While it seems the economy is cooling, the average interest rate on a new car is 14.09 percent and 14.34 percent for a used car.

The car buying consumer is in the midst of these juxtapositions. More people are employed than before the pandemic, but the ‘value’ of their paycheck continues to be hit hard by inflation. Availability of new and used vehicles is improving, but the ‘cost’ of a loan feels exorbitant, pricing many people out of the market. And, if the buyer has a vehicle to trade with a balance owed, the impact of negative equity may come as a surprise. According to Edmunds, the average negative equity value of auto trade-ins was $5,445 in April 2023, up nearly 24 percent compared with the previous year.

As a lender, what options are available to your team to continue to grow a strong lending portfolio while keeping customers out of a potential delinquency position? Here are some maneuvers that require a sharp pencil but should result in a win-win for both you and your customer.

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