Tag: Federal Reserve

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Economy

Economic Indicators Aid Forecasting

As we move through the second half of 2021, there are some economic indicators which should be considered when developing strategies for an auto lending portfolio in 2022.

According to Bankrate data as of June 30, 2021, the U.S. average rate for a 60-month new auto loan started the year at 4.24 percent and has dropped to 4.18 percent.  Similarly, rates on a 36-month used vehicle loan began at 4.53 percent and declined to 4.49 percent. The Federal Reserve has also signaled that it intends to keep interest rates low for the remainder of 2021 – and possibly into 2022.

Unemployment and growing debt are also important economic indicators to watch. According to Experian, the average annual percentage rates (APRs) on used and new car loans were 21.07 percent and 14.66 percent, respectively, for individuals with credit scores between 300 and 500. That compares with used and new car loan APRs of 3.71 percent and 2.41 percent, respectively, for those with top-tier scores between 781 and 850.

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Business Growth Economy

Turning the Page: Key Points on a New Year

We have officially turned the page into a new year and a new administration. Lessons learned from 2020 are still fresh, and there appears to be plenty of momentum on various financial fronts that lend to a positive outlook. Here are some key points to consider.

Key Points

The Federal Reserve has indicated it plans to keep interest rates at near zero for the next two to three years. Pending a third stimulus package, improved employment numbers, heightened consumer confidence, and the pace of the recovery, it’s possible that we will see auto lending growth as early as Q2.

According to a recent TransUnion 2021 consumer credit forecast, the financial institution found that consumer access to credit cards and personal loans is expected to rebound through the first half of 2021 while new auto loans will shift toward lower risk consumers. Despite potential obstacles to the consumer credit market, TransUnion foresees positive trends buoyed by expected improvements in macroeconomic factors such as unemployment and GDP.

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Business Growth

Buy The Champagne – But Keep It on Ice!

Mark Rappaport President Simplicity Division EFG Companies
Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

There have been several pieces of news this month which could prompt a little champagne and celebration. After struggling through a challenging first half of the year, the third quarter looks to be strong for anyone operating in the retail automotive space. U.S. light-vehicle sales rose 10% in August, the second straight month of higher volume, with positive sales across most brands.

Additionally, on September 19th, the Federal Reserve shaved 50 basis points off the short-term benchmark interest rate, including a quarter point reduction in the general interest rate. But, don’t pop the Champagne cork yet. While this signals good news for auto loan volume, Cox Automotive cautioned the industry not to be too excited, indicating that consumers with lower credit scores will not see any relief. Subprime has reached a 10-year high and the analyst firm sees lenders requiring a higher premium to cover their risk.

Potentially in response to this concern, the New York Federal Reserve reflected that lenders relaxed access to loans for customers whose credit scores were subprime and in the lowest category of prime during the second quarter of this year.

As a result, auto loan and lease originations combined totaled $155.6 billion for the quarter, up 2.9% year-over-year. Keeping a cautious eye on the market, the New York Fed analysts are monitoring an increase in auto delinquencies. In the second quarter of 2019, loans that were 90+ days delinquent rose year-over-year by 4.2%.

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