Credit Unions Take Vehicle Finance Spotlight in Q4

As interest rates rise, consumers appear getting savvy when shopping for the best rate possible and looking to their it unions for financing. In fact, in the last quarter of 2022, credit unions reached record-high market share in automotive finance becoming the largest lender for total automotive originations at 26.85%. They were closely followed by banks, at 25.81%, captives, at 24.4%, finance companies, with 12.03%, and buy-here-pay-here/other, at 10.91%.

While credit unions have always played a large role in he used-vehicle finance market, reaching such high levels of total finance market share demonstrates how they are also gaining more of a presence in new-vehicle financing.

In the fourth quarter, captives still took the lion’s share of new-vehicle financing, at 48.38%, a year-over-year decrease from 51.64%. Banks saw an even more significant decrease, dropping from 29.74% to 23.71. Credit unions came in to make up that difference, jumping from 13.73% of new-vehicle financing to 20.32%.

The growth was spurred on by credit unions’ low interest rates, which, in some cases, were more than a full percentage point lower than other lenders. For new-vehicle loans, credit unions were nearly on par with captives at 5.49% and 5.45%, respectively. Looking at other lenders, banks clocked in at 7%, followed by buy-here-pay-here/other lenders and finance companies at 9.38%.

For used-vehicle financing, credit unions offered the lowest average interest rate, at 7.03%, followed by captives at 9.25%, banks at 9.34%, buy-here-pay here/ others at 11.2%, and finance companies at 19.17%.

Average Monthly Payments Spike

One of the more immediate impacts of recent interest rate increases is a jump in average monthly payments for both new- and used-vehicle loans. The average monthly payment for a new-vehicle loan reached $716 in the fourth quarter, up year-over-year from $646, while the average monthly payment for a used-vehicle loan increased from $490 to $526 during the same time frame.

Average vehicle loan amounts also increased, though not as dramatically as in recent quarters. The average new-vehicle loan amount increased 4.04% year-over year, or just over $1,600, reaching $41,445. The average loan amount for used vehicles saw much smaller growth than it had in recent quarters, increasing just $378 year-over-year to reach $27,768.

Loan terms appeared to stabilize, with the average term for a new-vehicle loan decreasing year-over-year from 69.64 months to 69.44 months. The average used-vehicle loan term saw a slight uptick, from 67.35 months to 68.01 months year-over-year. With interest rates continuing to rise, that could change in upcoming quarters as consumers look to manage their monthly payments.

SUVs Still Popular

Another underlying driver in the rise in average vehicle loan amounts and monthly payments is consumers’ growing penchant for larger vehicles, like SUVs and pickup trucks. SUVs comprised 60.74% of new-vehicle financing in the fourth quarter, up year-over-year from 59.10%. Sedans also saw growth for the first time in a while, moving from 17.69% to 18.26% of new-vehicle financing year-over-year. Pickup trucks decreased from 17.89% to 15.98%.

SUVs and trucks tend to have much higher average monthly payments: $896 for a Ford F-150 in the fourth quarter – notably higher than the overall average of $716. The Silverado 1500 and Jeep Wrangler Unlimited showed similar trends, with average monthly payments of $827 and $854, respectively. One way for consumers to manage monthly payments is to opt for a lease instead of a loan. On average, a lease monthly payment was $138 less than a loan. The difference is even greater for some larger vehicles, such as the Ford F-150, which has an average disparity of $336.

As we move further into 2023, there are many important attributes to pay attention to, such as rising delinquency levels, as average loan amounts stabilize and inventory challenges continue to level out. If interest rates continue to rise, average terms may also continue to stretch out. Leveraging data to keep a pulse on industry trends will help lenders and dealers make the most strategic decisions in the days to come.