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Credit unions remain ahead of banks for auto loans

Written on Mar 7, 2023

Credit unions maintained their recently won dominance in automotive lending in the fourth quarter, but by a smaller margin than in the previous quarter. 

Experian’s State of the Automotive Finance Market report for the fourth quarter showed credit unions originated 26.9% of the total number of loans and leases in the fourth quarter, up from 21.4% a year earlier but down slightly from 28.4% in the third quarter. 

Credit unions attained the largest percentage of the vehicle finance market for the first time in the third quarter of 2022. 

Taking leasing out of the equation, Experian found credit unions produced nearly 29.1% of all vehicle loans, followed by banks (27.4%), captives (19.5%) and finance companies (12.7%). 

Melinda Zabritski, Experian’s senior director of automotive financing and the report’s author, said the biggest driver of credit union growth was lower interest rates for both new and used cars. 

“Even as rates overall have increased, credit unions have managed to be a full percentage point lower than other lenders,” Zabritski said in a statement. “In addition to lower rates, we continue to see fewer incentives from captive lenders, giving credit unions the opportunity to grow market share in the competitive rate environment.” 

Experian data also showed credit unions had an average interest rate of 5.49% for new cars in the fourth quarter, up from 3.61% a year earlier. Rates rose faster at banks, from 4.34% at the end of 2021 to 7% at the end of 2022. Rates among captives rose from 3.14% at the end of 2021 to 5.45% at the end of 2022. 

The average used car rate at credit unions rose from 5.08% in 2021′s fourth quarter to 7.03% in 2022′s fourth quarter. The average at banks rose from 6.47% in 2021′s fourth quarter to 9.34% in 2022′s fourth quarter. 

While rates rose rapidly last year, average loan amounts grew at a slower pace than 2021. 

The average new vehicle loan amount in the three months ending Dec. 31 was $41,445, up 4% from 2021’s fourth quarter. Amounts had risen 12.5% a year earlier. 

The difference was even more notable for used vehicles. Their $27,768 average loan amount was only 1.38% higher than in 2021’s fourth quarter, compared with a 21% increase a year earlier. 

Average loan terms for new cars fell from 69.64 months in 2021’s fourth quarter to 69.44 months in 2022’s fourth quarter. Used vehicle terms were 68.01 months, up from 67.35 months a year earlier. 

Other overall market findings from the report included: 

  • Leasing fell from 24% of financing in 2021’s fourth quarter to 17.2% in 2022’s fourth quarter. 

  • Prime and super prime borrowers comprised 66.5% of all vehicle financing in the fourth quarter of 2022, up from 65% a year earlier. 

  • The share of financing made up by sedans grew from 17.7% in 2021’s fourth quarter to 18.3% in 2022’s fourth quarter. 

Experian also found credit unions’ unit shares in the fourth quarter by other measures were: 

  • 29.1% of new and used loans (excluding leases), up from 23.5% a year earlier and down from 30.7% in the third quarter. 

  • 20.3% of loans and leases on new cars, up from 13.7% a year earlier and down from 23.7% in the third quarter. 

  • 25% of loans on new cars, up from 17.6% a year earlier and down from 28.8% in the third quarter. 

  • 31.2% of used auto loans, up from 26% a year earlier and down slightly from 31.5% in the third quarter.