Experian: Lower rates help credit unions get auto loans in Q2

Car showroom. (Source: Shutterstock)

Offering lower interest rates was a big reason credit unions racked up a share of auto loans in the second quarter, which set a record dating back to at least 2007, an analyst said. Experian.

Experian’s ‘State of the Auto Finance Market’ report for the second quarter released Aug. 25 showed credit unions originated 25.8% of loans and leases from lenders in the three months. ending June 30, compared to 18.3% a year earlier and 22.1% in the first quarter of this year.

Credit unions were just behind the share of banks (27.9%) and overtook the share of captive lenders (22.6%) in the second quarter.

The Experian report showed credit unions set records for new and used auto creations dating back to at least 2017.

But in an interview with CU time On Aug. 26, Melinda Zabritski, senior director of automotive financial solutions at Experian and author of the report, said second-quarter volumes were higher than any period in its records, which dates back to 2007.

“This is the highest share we’ve seen in credit unions,” Zabritski said.

Melinda Zabritsky Melinda Zabritsky

The previous high for credit unions was around 23% of new and used vehicle loans and leases in the third quarter of 2018.

Experian found that the largest gain for credit unions was in new cars, where credit unions’ share was 21.4%, nearly double the 11.2% a year earlier and up from 15. 8% in the first quarter. In used cars, credit unions’ share was 28.6% in the second quarter, down from 23.5% a year earlier and 26.5% in the first quarter.

Experian measures the number of loans and leases, but the pattern is similar when comparing portfolio balances measured by the Fed and CUNA.

Data from the Fed and CUNA showed credit unions held 33.7% of the nation’s auto loan balance as of June 30. The all-time high surpassed the previous high of 32.6% set in December 2018. The share also rose to 31.8% on March 31 and a low of 31.0% at the end of the second quarter of 2021.

Zabritski and CUNA chief economist Mike Schenk attributed much of the gain to credit unions offering lower interest rates to borrowers.

Schenk, in Latest CUNA Economic Update video, said credit unions are doing a better job than banks and other lenders of providing the affordable credit people need to maintain reliable transportation to work.

Mike Schenk Mike Schenk

“Getting to and from work is extremely important,” he said. “It helps to ensure that people’s financial well-being is on solid ground.”

He cited DataTrac figures that showed credit unions were charging an average of 3.52% for a five-year, $38,000 loan on a new car on Aug. 22, compared to 4.72% for banks. Credit union borrowers received an average payment of $601, compared to $622 for banks, which Schenk said saved credit union members $1,247 over the life of the loan.

“Credit unions stand head and shoulders above other providers,” Schenk said.

Zabritski also found that credit unions were offering lower rates in the second quarter.

“The other types of lenders actually had a much bigger rate increase and the credit unions didn’t,” Zabritski said. “Credit union rates are significantly lower than other lenders. Even on the used vehicle side, we are talking about more than 200 basis points less.

“Credit union rates are actually down. This is one of the reasons why average payments are lower in credit unions,” she said.

Zabritski said another factor benefiting credit unions is that captive lenders – last year’s biggest losers – have offered little incentive since the supply of new vehicles has been limited since the start of 2021. .

Credit unions’ share could shrink, Zabritski said, but with limited new vehicle supplies and little incentive from captives, “you don’t have that, that price competition on the vehicle side. new”.

Meanwhile, Jason Haley, chief investment officer for ALM First of Dallas, said credit unions need to make sure they don’t undercharge loans.

Haley, speaking at Callahan & Associates’ quarterly Trendwatch webinar on Wednesday, said loan committees need to constantly monitor conditions, especially in volatile markets.

Jason Haley Jason Haley

Credit union committees that meet monthly for loan pricing can act on the data that is transformed. “Things can get stale very quickly,” he said.

“It’s critical to maintain disciplined asset pricing when you’re in a volatile market,” Haley said. “Mispriced loans and poor asset pricing can certainly lead to liquidity problems over time.”

Zabritski said another change in the market is that most borrowers have improved their credit ratings since the COVID-19 pandemic began in March 2020.

“We have seen a continuous migration of credit ratings over the past few years,” she said. “We have a much larger percentage of the market that is privileged.”

For example, people who took out a loan in 2017 saw their credit rating go up by 20 to 50 points.

Another change is that people who bought a used vehicle in 2017 often saw their loan-to-value ratio drop.

Zabritski compared the original 2017 Manufacturer’s Suggested Retail Price (MSRP) of the top 10 used vehicles people are buying today (yes, mostly trucks) with the current value of their used car .

“In almost all cases, the current used value is higher than the original MSRP,” she said. “So you find situations where the vehicle sitting in your driveway is worth more today than it was when you bought it.”

So if you bought the car for $25,000, its current value as a trade-in is $25,000 and you only owe $15,000 on it, “you have $10,000 in equity”.

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