Rush hour traffic
Credit unions lost share of vehicle loans in the third quarter with a slight improvement from the second quarter for used cars and a large decline for new cars, Experian reported.
Experian’s State of the Automotive Finance Market report showed lower interest rates and longer terms easing the impact of higher vehicle costs.
“Consumers tend to shop for vehicles based on monthly payment,” Melinda Zabritski, Experian’s head of automotive financial insights, said. “Although we’re beginning to see interest rates slowly decline, affordability remains top of mind for many shoppers. It’s not surprising to see some shoppers explore the idea of extending loan terms to secure a lower monthly payment.”
The report released Dec. 4 also showed credit unions continuing to dominate loan refinancing and electric vehicles taking up a larger portion of total financing. However, much of the EV gain has been through leases — a market with little credit union participation.
Experian found credit unions originated 23.7% of the number of new and used car loans in the three months ending Sept. 30, down slightly from 23.8% a year earlier and 23.9% in the second quarter.
Banks made 31.3% of the third-quarter loans, up from 28.6% a year earlier and 29.9% in the second quarter.
Captives’ share of total loans was 19% in the third quarter, down from 21.4% a year earlier and 18.6% in the second quarter. Other lenders also lost share.
For new car loans, credit unions’ share was 15.9% in the third quarter, up from 14.1% a year earlier. Credit union share was down from a two-year record 16.8% in the second quarter, but still the second-best since the end of 2023.
For used cars, credit unions’ share was 28% in the third quarter, down from 28.8% a year earlier and up from 27.6% in the second quarter.
As car loan rates fall, consumers are borrowing more. Their payments are also rising, but not as quickly.
For new cars, buyers financed an average of $42,332 in the third quarter, up 3.4% from $40,954 a year earlier.
The average monthly payment was $748, up 1.8% from $735 a year earlier.
Interest rates were 6.56% in the third quarter, down from 6.65% a year earlier and 7.11% two years earlier.
Average loan-to-values were 111.9% in the third quarter, up from 110.6% a year earlier.
For used cars, the average loan was $27,128 in the third quarter, up 3.1% from a year earlier. However, payments increased only 1.5% to $532 because of lower rates and longer terms.
The average loan rate was 11.40% in the third quarter, down 46 basis points from a year earlier, while terms rose to 67.4 months, up from 67.1 months a year earlier.
Loan-to-value for used car loans was 115.3% in the third quarter, down from 125% a year earlier.
Refinances have risen steadily since hitting a low at the end of 2023 of $1.7 billion through 58,000 loans. In the third quarter lenders refinanced $3.8 billion through 121,000 loans. Typically consumers refinanced after 25 months.
Credit unions accounted for 65.4% of the refinances, up from 63.4% a year earlier, but down from 67.4% in the second quarter.
Consumers typically saved more than 2 percentage points on refinances. Consumers came in with an average rate of 10.61% and left with a rate of 8.53% after refinancing, which translated into an average savings of $77 a month.
Consumers fared best at credit unions, saving an average of $95 a month. Savings were $56 at banks and $18 at finance companies.
On the other hand, refinancing a car typically added about 25 months of payments. The average refi term is 65 months, but adding the length of previous payments extends the effective term to 90 months.
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.