Use data and analytics to make informed auto loan decisions

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The auto finance sector has faced a myriad of challenges since the start of the pandemic. Every segment of the industry has encountered headwinds, including credit unions. In fact, when captives offered strong incentives in 2020, credit unions saw their market share decline significantly.

But new data shows the trend is starting to level off, with credit unions making market share gains – and there’s an opportunity for more growth.

According to Experian’s “State of the Automotive Finance Market: Q4 2021” report, the total share of auto finance is up again for credit unions, rising to 20.86% in the fourth quarter of 2021 from 18.86%. % the previous year. The increases occurred in new and used vehicle loans. In Q4 2021, credit union market share of new financing increased to 13.75% from 11.24% in Q4 2020, while used market share saw an uptick , going from 25.13% to 25.93% over the same period.

Other opportunities may be on the horizon for credit unions in the coming quarters. Amid ongoing inventory challenges, used vehicles continue to see increased demand – a focal point for credit unions.

Average monthly loan payments continue to climb

A notable impact of the continued shortage of inventory is the sharp increase in average auto loan amounts. The average new vehicle loan amount increased by $4,300 from Q4 2020 to Q4 2021, reaching $39,721. Used vehicles saw an even bigger increase year over year, from $22,630 to $27,291.

Understanding previous year-over-year percentage increases helps clarify the significance of these trends. For example, in Q4 2019, the year-over-year increase in average used vehicle loan size was 3.44%, then slightly higher in Q4 2020 at 8.33%. But in the fourth quarter of 2021, it saw an increase of 20.59%, more than four times the increase of the previous year. New-vehicle financing has seen the biggest year-over-year increase in the past five years, but not as dramatically as used; the average loan size for new vehicles increased by 12.14% from Q4 2020 to Q4 2021, compared to 6.39% from Q4 2019 to Q4 2020.

The increase in average loan amounts naturally led to an increase in average monthly payments year over year. In the fourth quarter of 2021, the average monthly loan payment for new vehicles reached $644, compared to $579 in the fourth quarter of 2020. Similarly, the average monthly loan payment for used vehicles reached an all-time high at $488. $ in the fourth quarter of 2021, compared to $417 in the fourth quarter of 2020.

Given the increase in average loan size and monthly payments this quarter, used vehicles continue to be a more economical option than new vehicles. Observing the data and these evolving trends will be crucial in increasing market share in the coming months.

Auto Finance continues to move more Prime

Overall, the auto finance market continues to shift more towards prime. In Q4 2021, we saw prime and super prime borrowers make up the majority of total auto borrowing, at nearly 64% of borrowing, with the prime rate dropping to 45.56% in Q4 2021 from 43.30% in Q4 2020. However, super prime borrowers saw a slight decline from 19.92% in Q4 2020 to 17.58% in Q4 2021.

By comparison, the total subprime share fell by just over 16% overall, from 14.63% in Q4 2020 to 14.24% in Q4 2021, and deep subprime fell from 2.08 % in Q4 2020 to 1.79% in Q4 2021. on a downward trajectory for a few years, it has been further accentuated by the pandemic, with subprime production remaining close to historically low levels. As the market becomes more privileged, this could help create new opportunities for credit unions.

Delinquency rates remain stable, despite increases

Despite the increase in loan amounts from year to year, delinquency rates remain stable. The data shows a slight increase in 30-day delinquencies in Q4 2021 to 1.86% from 1.81% in Q4 2020, while 60-day delinquencies saw a smaller increase from 0, 64% to 0.66% year over year.

It should be noted that in addition to the year-over-year stability of delinquencies, these percentages remain below pre-pandemic levels. The 30-day delinquency rate reached 2.42% in the fourth quarter of 2019 and the 60-day delinquency rate at 0.83% over the same period. However, with large increases in average auto loan amounts and monthly payments this quarter, the delinquency rate will be an important metric to watch in the months ahead.

Although we have witnessed many challenges disrupting the automotive industry during the pandemic, it remains resilient. For credit unions to maintain growth, it will be important to continue to leverage advanced data and analytics to understand trends in this dynamic environment to make more informed lending decisions going forward.

Melinda Zabritski is Senior Director of Automotive Financial Solutions for Experian, headquartered in Schaumburg, Illinois.

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