Tag: interest rates

Amid interest rates leveling out and some lenders reassessing go-to-market strategies, the automotive finance landscape is experiencing notable shifts in market share. According to Experian’s State of the Automotive Finance Market Report: Q1 2025, banks recouped some of their total finance market share for the first time in several years, reaching 26.6% during the quarter, up from 24.8% a year ago. On the other hand, captives’ total market share declined from 31.3% to 29.8% year-over-year and credit unions experienced a modest increase from 20.2% to 20.6%. Despite the overall market share shifts, captives continue to lead in new vehicle financing at 57.1% in Q1 2025, although down from 62.1% the year prior. Meanwhile, banks increased to 24.1% this quarter, from 20.4% in Q1 2024 and credit unions went from 9.6% to 10.9% during the same period. On the used side, banks and credit unions were grouped much closer together. Banks led the way with 28.4% of the used finance market in Q1 2025, up from 27.9% last year, while credit unions went from 27.7% to 28.2% year-over-year and captives declined from 8.5% to 7.4%. As market share movement continues to be a valuable indicator of shifting strategies and consumer behavior, it’s important for automotive professionals to keep a close eye on these shifts to uncover new opportunities while looking for ways to stay ahead of the rapidly evolving industry. Breaking down the latest finance trends Data in the first quarter of 2025 shows the automotive finance market continues to stabilize as automotive professionals gain clearer visibility into lender behavior and consumer demand. For example, the average loan amount for a new vehicle increased $1,110 year-over-year to $41,720 in Q1 2025. However, the average interest rate dropped from 6.9% to 6.7%, and the average monthly payment went from $737 last year to $745 this quarter. For used vehicles, the average loan amount saw a slight uptick of $90 year-over-year, reaching $26,144 this quarter. Meanwhile, the average interest rate declined from 12.4% last year to 11.9% this quarter and the average monthly payment trended lower at $521, from $524 in Q1 2024. Monitoring and leveraging market share shifts and financing trends can support strategic planning while empowering automotive professionals to anticipate consumer purchasing patterns and tailor conversations more effectively to meet buyers where they are during their car buying journey. To learn more about automotive finance trends, view the full State of the Automotive Finance Market: Q1 2025 presentation on demand.

Driven by a range of appealing factors including lower monthly payments and a wider array of models—due to the continuous rise in new vehicle inventory—leasing has reappeared as an optimal choice for consumers who are in the market for a vehicle. According to Experian’s State of the Automotive Finance Market Report: Q2 2024, leasing increased to 25.35%, up from 21.14% in Q2 2023 and 19.30% the year prior. While the average monthly payment and interest rate for a new loan modestly increased year-over-year, leasing is increasingly becoming a more attractive option for those leaning towards flexibility and affordability. For example, the average monthly payment on a leased vehicle was $148 less than a loan this quarter. What’s more, it seems consumers are leaning towards larger vehicles. For instance, the Honda CR-V (2.98%) continued to lead the top leased models in Q2 2024, and it was followed closely by the Tesla Model Y (2.61%). Rounding out the top five were the Honda Civic (2.29%), Ford F-150 (2.02%), and Chevrolet Silverado 1500 (1.86%). Prime financing grows and lease payments decline across all segments When looking at risk distribution trends in Q2 2024, prime consumers accounted for nearly 70% of the total finance market—with prime coming in at 37.82%, down from 39.84% last year and super prime increasing from 28.98% to 31.59% year-over-year. Subprime also saw a slight increase, going from 13% to 13.06% during the same period. It’s notable that all risk segments experienced a decrease in average monthly payments for leased vehicles, as super prime went from $601 in Q2 2023 to $586 in Q2 2024, prime declined to $583 this quarter, from $596 last year, and subprime was at $597, from $611. With the average monthly payments declining year-over-year for majority of shoppers, it can potentially create a more competitive market and drive more consumers towards this finance option—something automotive professionals should keep a close eye on. New and used vehicle finance market overview Data in Q2 2024 found that new vehicle loan amounts increased slightly, reaching $40,927, up from $40,743 last year, and the average interest rate went from 6.78% to 6.84% year-over-year. Despite the increases, the average monthly payment for a new vehicle only experienced a $1 growth to $734 this quarter. On the used side, the average loan amount declined from $27,316 Q2 2023 to $26,248 in Q2 2024, and the average rate grew from 11.47% to 12.01% in the same time frame. Though, the average monthly payment declined to $525 this quarter, from $536 last year. As the automotive industry continues to adapt to the changing market conditions and consumer preferences, it’s important for professionals to leverage the most current data—this will allow them to effectively assist consumers by meeting their financial needs with the available options. To learn more about automotive finance trends, view the full State of the Automotive Finance Market: Q2 2024 presentation on demand.

According to Experian’s State of the Automotive Finance Market Report: Q4 2023, EVs comprised 8.6% of total new retail transactions, an increase from 7.1% in Q4 2022.

According to Experian’s State of the Automotive Finance Market Report: Q3 2023, the average new vehicle loan amount decreased to $40,184, from $41,543 in Q3 2022 and the average used vehicle loan amount went from $28,684 to $27,167 year-over-year.

Experian’s State of the Automotive Finance Market Report: Q4 2022 found that the year-over-year (YOY) average new loan amount increased 4.04%, a smaller growth rate compared to 12.46% YOY in Q4 2021

To help the industry better understand the widespread growth, ahead of the show we compiled an Auto Finance Year-in-Review report to break down all things EV—from financing trends to vehicle segments and more.

No one can deny that the mortgage and real estate industries have been uniquely affected by COVID-19. Social distancing mandates have hindered open house formats and schedules. Meanwhile, historically low-interest rates, pent-up demand and low housing inventory created a frenzied sellers’ market with multiple offers, usually over-asking. Added to this are the increased scrutiny of how much borrowers will qualify and get approved for with tightened investor guidelines, and the need to verify continued employment to ensure a buyer maintains qualifying status through closing. As someone who’s spent more than 15 years in the industry and worked on all sides of the transaction (as a realtor and for direct lenders), I’ve lived through the efforts to revamp and digitize the process. However, it wasn’t until recently that I purchased my first home and experienced the mortgage process as a consumer. And it was clear that, for most lenders, the pandemic has only served to shine a light on a still somewhat fragmented mortgage process and clunky consumer experience. Here are three key components missing from a truly modernized mortgage experience: Operational efficiency Knowing that the industry had made moves toward a digital mortgage process, I hoped for a more streamlined and seamless flow of documents, loan deliverables and communication with the lender. However, the process I experienced was more manual than expected and disjointed at times. Looking at a purchase transaction from end to end, there are at least nine parties involved: buyer, seller, realtors, lender, home inspectors/inspection vendors, appraiser, escrow company and notary. With all those touchpoints in play, it takes a concerted effort between all parties and no unforeseen issues for a loan to be originated faster than 30 days. Meanwhile, the opposite has been happening, with the average time to close a loan increasing to 49 days since the beginning of the pandemic, per Ellie Mae’s Origination Insights Report. Faster access to fresher data can reduce the time to originate a mortgage. This saves resource hours for the lender, which equates to savings that can ultimately be passed down to the borrower. Digital adoption There are parts of the mortgage process that have been digitized, yes. However, the mortgage process still has points void of digital connectivity for it to truly be called an end-to-end digital process. The borrower is still required to track down various documents from different sources and the paperwork process still feels very “manual.” Printing, signing and scanning documents back to the lender to underwrite the loan add to the manual nature of the process. Unless the borrower always has all documents digitally organized, requirements like obtaining your W-2’s and paystubs, and continuously providing bank and brokerage statements to the lender, make for an awkward process. Modernizing the mortgage end-to-end with the right kind of data and technology reduces the number of manual processes and translates into lower costs to produce a mortgage. Turn times are being pushed out when the opposite could be happening. A streamlined, modernized approach between the lender and consumer not only saves time and money for both parties, it ultimately enables the lender to add value by providing a better consumer experience. Transparency Digital adoption and better digital end-to-end process are not the only keys to a better consumer experience; transparency is another integral part of modernizing the mortgage process. More transparency for the borrower starts with a true understanding of the amount for which one can qualify. This means when the loan is in underwriting, there needs to be a better understanding of the loan status and the ability to better anticipate and be proactive about loan conditions. Additionally, the lender can profit from gaining more transparency and visibility into a borrower’s income streams and assets for a more efficient and holistic picture of their ability to pay upfront. This allows for a more streamlined process and enables the lender to close efficiently without sacrificing quality underwriting. A multitude of factors have come into play since the beginning of the pandemic – social distancing mandates have led to breakdowns in a traditionally face-to-face process of obtaining a mortgage, highlighting areas for improvement. Can it be done faster, more seamlessly? Absolutely. In ideal situations, mortgage originators can consistently close in 30 days or less. Creating operational efficiencies through faster, fresher data can be the key for a lender to more accurately assess a borrower’s ability to pay upfront. At the same time, a digital-first approach enhances the consumer experience so they can have a frictionless, transparent mortgage process. With technology, better data, and the right kind of innovation, there can be a truly end-to-end digital process and a more informed consumer. Learn more

With jobs losses mounting and the prospects for a quick economic rebound fading, some segments of the financial markets are beginning to bet that the Federal Reserve will take interest rates negative for the first time in U.S. history. If that happens, it could have a profound impact on the U.S. economy, and more specifically, on financial institutions. While other nations such as Denmark, Japan, Sweden, and Switzerland have experimented with negative rates over the years, the U.S. has shied away – both for political and economic reasons. Instead, when interest rates are near zero, the Fed prefers to use a mix of large-scale asset purchases and forward guidance to support the economy. In the current crisis, the Fed has also launched several new emergency lending programs to ensure the smooth functioning of the financial system. The question remains, however, if these tools will be enough to keep the U.S. out of a deep recession, especially if Congress fatigues on further fiscal support. The Fed is independent but keep an eye on the markets In his May 13th remarks to the Peterson Institute for International Economics, Fed Chairman Jerome Powell said that he and the rest of the rate-setting committee unanimously shared the same view on negative rates: “For now, it is not something we are considering”. While some market watchers looked for clues in the “for now” phrasing, it was clear from the rest of his remarks that the bar for enacting negative rates was set very, very high. However, despite the Fed having independence in its policy-making decisions, financial markets and to some extent, politics, still have influence. And there is precedent for markets exerting pressure on the Fed and perhaps even getting their way. In 2013, when then-Fed Chairman Ben Bernanke made a surprise announcement that the Fed would reduce the level of asset purchases, global financial markets went into a frenzy. That period, now known as the “Taper Tantrum”, altered the way the Fed signals its policy actions. More recently, the big declines in equity markets in late 2018 were seen by many as a primary driver in the Fed’s sudden U-turn from raising rates four times that year to lowering them three times in 2019. Now, with equity markets wanting more stimulus and traders in fed fund futures appearing to anticipate negative rates from the central bank in early 2021, there is concern that the markets are trying to bully their way again. And with the president’s renewed call for the Fed to take rates negative, there is some reason to believe that “not now” could become “now” sooner than many expect. Concerns for financial institutions While several central banks have resorted to negative interest rate policy for years, the efficacy of its use is unclear. But what is clear, is that financial institutions bear the greatest burden in implementing the policy. Currently in the U.S., banks earn interest on excess reserves held at the Fed. Negative rates would essentially flip the script and penalize this practice, forcing banks either to pay the Fed interest or do something else with the money. The hope is that this will encourage banks to make more loans and stimulate the economy. However, as Fed Chair Powell said in his remarks, he believes that negative rates could have the opposite effect and curtail lending. Since negative rates would put a downward pressure on interest rates across the board, the net interest margin – the spread banks make between what they pay depositors and what they charge for loans – would be compressed and profitability would sink. If banks and other financial institutions are struggling, credit availability could decline when it is needed the most. Why it matters Financial institutions cannot ignore the possibility of negative interest rates in the U.S. as it would have wide-ranging effects and potentially significant consequences. And while Fed officials have said they are not considering negative rates, the notion is not totally off the table. As the famous economist, Stanley Fischer, advised his fellow central bankers in his well-known piece “Central Bank Lessons from the Global Crisis”: “In a crisis, central bankers (and no doubt other policymakers) will often find themselves deciding to implement policy actions that they never thought they would have to undertake – and these are frequently policy actions that they would prefer not to have to undertake. Hence, a few final words of advice for central bankers: Never say never.”

After two consecutive emergency meetings in March and numerous stimulus announcements, the Federal Open Market Committee (FOMC) finally got back on track and wrapped up their standard two-day meeting on April 29th. While Fed officials did not make any changes to the federal funds rate – which is currently sitting near zero - or to the level of purchases of treasuries and mortgage-backed securities, they did provide a glimpse into how long rates are likely to remain at their current levels. Hint: It is going to be a while. Understanding the Fed’s statement   In order to get a clearer picture of what the Fed is thinking, skip the headlines and go straight to the source – the post-meeting press release. Here is the most important paragraph from their statement (with the key components underlined): “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Just by taking the statement at face value, it is clear the Fed is going to keep rates where they are for some time, but for how long? That depends on how the key phrases are interpreted. The first, “over the medium term”, seems simple but requires some detective work. What does “medium term” mean? In the post-meeting press conference, the Fed Chairman was asked this question and he alluded that it likely means a year or more. So, there is part 1 - the Fed expects to keep rates near zero for at least a year. That is not all that surprising, but it does provide a floor: a minimum timeframe. Key phrase 2, however, requires a bit more effort but is where the real story lives. The dual mandate is no longer a balancing act “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” There is a lot of economics in that sentence. The Fed has been mandated by Congress to achieve two primary goals – maximum employment and price stability (inflation near 2%). These two goals, or the “dual mandate” as they are often referred to, seem simple but have historically been at odds. The thinking went that if the Fed kept interest rates low to support employment, then inflation would rise. And if the Fed increased interest rates to control inflation, then employment would decline. A delicate balance - at least it was thought. Somewhere in the last couple of years Fed officials have realized that even after a decade of near-zero interest rates following the financial crisis and very-low levels of unemployment, inflation has remained persistently below their 2% target. Something has broken in the relationship. This is key, because it means that the Fed now feels free to keep interest rates exceptionally low in order to get employment back on track, without having to worry about inflation; and may in fact need to keep rates lower for longer in order to boost inflation. Both sides of the dual mandate now appear to require low rates. Chasing “maximum employment” With inflation no longer a priority for Fed officials at the moment, their sights are set squarely on achieving the maximum employment portion of the mandate. But what does it mean to achieve “maximum employment”? Well, it is an elusive target, but in general, it is the point at which rising wages leads to higher inflation – the result of businesses increasing pay to compete for a shrinking supply of workers. What is known is that even when the unemployment rate was at a 50-year low of 3.5% in early 2020, wages were not rising much. Which indicates that the economy may have been near maximum employment but was not quite there yet. So, to achieve maximum employment, unemployment needs to be somewhere near 3.5% and that could take some time, a long time. Current range estimates show the unemployment rate rising to anywhere between 12 – 30% in the coming months. And a recent report out of the Congressional Budget Office projected that unemployment will still be around 9.5% at the end of 2021. The last time the unemployment rate was at 9.5% was right after the financial crisis, and from that point it took nearly a decade for the rate to fall to 3.5%. And while it is not expected that the current crisis will be as prolonged as the previous one, it still provides a reference point as to how long it can take to recover job losses. So how long does the Fed expect to keep rates near zero? One year at the very minimum, easily two years, and perhaps up to a decade.

Consumer credit trends and markets are constantly evolving, particularly when it comes to originations and delinquencies on mortgages, credit cards and auto loans. According to Experian research, over 2.7 million out of 89 million active automotive loans and leases are either 30 or 60 days delinquent. Triggers that signal a greater likelihood of consumers falling delinquent on loans, mortgages and credit card payments, include high-interest rates, a high utilization rate and recent derogatory trades. By tracking and forecasting consumer trends over time, you can more easily predict consumer behavior and better prepare for potential issues within each market. Join Gavin Harding, Experian Senior Business Consultant, and Alan Ikemura, Experian Data Analytics Senior Product Manager, during our live Quarterly Credit Trends webinar on May 30 at 2:00 p.m. ET. Our expert speakers will provide a view of the real estate market and share insights on the latest consumer credit trends. Highlights include: 2019 economic drivers Q1 2019 origination and delinquency trends Mortgage Home equity Bankcard Auto Register now

Unsecured lending is increasing. And everyone wants in. Not only are the number of personal loans increasing, but the share of those loans originated by fintech companies is increasing. According to Experian statistics, in August 2015, 890 new trades were originated by fintechs (or 21% of all personal loans). Two years later, in August 2017, 1.1 million trades belonged to fintechs (making up 36% of trades). This increase is consistent over time even though the spread of average loan amount between traditional loans and fintech is tightening. While convenience and the ability to apply online are key, interest rates are the number one factor in choosing a lender. Although average interest rates for traditional loans have stabilized, fintech interest rates continue to shift higher – and yet, the upward momentum in fintech loan origination continues. So, who are the consumers taking these loans? A common misconception about fintechs is that their association with market disruption, innovation and technology means that they appeal vastly to the Millennial masses. But that’s not necessarily the case. Boomers represent the second largest group utilizing fintech Marketplace loans and, interestingly, Boomers’ average loan amount is higher than any other generational group – 85.9% higher, in fact, from their Millennial counterparts. The reality is the personal loan market is fast-paced and consumers across the generational spectrum appear eager to adopt convenience-based, technology-driven online lending methods – something to the tune of $35.7 million in trades. For more lending insights and statistics, download Experian’s Q2 2018 Personal Loans Infographic here.   Learn More About Online Marketplace Lending Download Lending Insights

Since 1948, International Credit Union Day – a time to recognize the credit union movement – has been celebrated the third Thursday of October. The day is the perfect time to remind your members and consumers about all of the services and benefits your credit union offers. This year’s theme, “The Authentic Difference,” celebrates what makes credit unions stand out. Here are 10 reasons CUs deserve a spotlight: Credit unions are non-profit cooperatives, owned and operated by its members. That means they emphasize consumer value to more than 217 million members worldwide. Profits go back to members in the form of reduced fees, higher savings rates and lower loan rates. Personal relationships are key. Credit unions pride themselves on developing relationships with their members, and CUs are typically staffed by friendly reps who know customers by name. Checking accounts are free. Roughly 80 percent of credit unions offer free checking accounts, compared to less than 50 percent of banks, according to economic research firm Moebs Services. Few ATM fees. Many credit union customers are able to avoid ATM fees because CUs typically give them access to a large network of ATMs by sharing branches and other resources. Savings rates are above average. Because credit unions don't have to pay dividends to shareholders and are exempt from federal taxes they can offer high rates on saving accounts. The average credit union offers CD, money market, and savings rates well above the national banking rates average. Lower interest rates. Credit unions offer lower interest rates on some loans. The difference between banks and credit unions was greatest in car-loan interest rates, according to a September report by SNL Financial. The average 36-month used-car loan interest rate offered by CUs was 2.67 percent compared to 4.45 percent for banks. For new-car loans, CUs offered an average interest rate for 48 months of 2.60 percent compared to 3.94 percent for banks. Invested in the community. A credit union’s core values are focused on its members and the communities where they live and work. Many provide financial education and outreach to consumers. It’s easier to get credit. CUs don’t have to abide by loan restrictions and qualifications mandated by a corporate office, so they have more flexibility to make loans when possible. Small-business support: CUs may know borrowers and are able to take into account intangibles like community reputation and accountability. Also, they understand the value to the community of a small business, its market and credit needs. Joining is easy. Many credit unions base eligibility simply on where you live, instead of restricting membership to a particular employer. Since expanding eligibility, credit union membership has grown by about two percent a year for the past decade.