Credit Unions Dominate Auto Loan Market Share with Lower Rates

A couple shops for new cars.

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Credit unions now boast the highest market share for auto loans, undercutting banks and auto manufacturers’ lenders with generally lower rates, according to Experian’s quarterly automotive finance report.

For all auto loans in the third quarter of 2022, credit unions’ share increased to 30.7%, up from 22.8% in 2021. For used car loans, credit unions claimed 31.5% of the market share, up from 25.5% in 2021.

For new car loans, auto manufacturer’s lenders, or “captives,” continued to dominate the market with 44.2% of total financing compared to banks’ 25.7% and credit unions’ 23.7%. But credit unions are quickly making strides here. Year-over-year, credit unions’ market share nearly doubled from 17% in 2021, while both banks and captives lost ground.

As car loans are getting more expensive, credit unions offered average interest rates of 5.94% for used cars in the third quarter, compared to banks’ average interest rates of 8.36%, according to Experian data cited by The Wall Street Journal.

Overall, the average interest rate was 5.16% for new car loans and 9.34% for used car loans, which is up 4.1% and 8.2%, respectively, in the third quarter from the year prior, according to Experian. Average monthly payments rose to $700 from $618 for new cars and to $525 from $472 for used
cars during that time.

Economic Trends Affecting Auto Loan Rates

Overall consumers are borrowing more to finance new vehicles. The average new loan amount increased by $3,911, or by 10.4%, in the third quarter of 2022 from a year prior, according to Experian. Used loan amounts increased by $2,255 during that period.

The Federal Reserve has been raising its key interest rate the past year in an effort to combat inflation, and interest rates on other financial products, including auto loans, have been
rising in tandem.

Credit unions, unlike banks, are not driven to earn profits for shareholders. Instead, these financial institutions are owned by their members and tend to offer more competitive products and services. Credit unions also may not be as driven as banks to increase rates because they don't typically bundle and sell their auto loans as bonds to investors as banks do.

Meanwhile, the prices for both new and used vehicles have been rising amid semiconductor shortages causing supply issues with lagging production. Facing higher prices, more consumers have been opting for used cars. The average cost of a new car was a record $48,681 in November, according to Kelly Blue Book data.

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  1. Experian. "State of the Automotive Finance Market Q3: 2022."

  2. The Wall Street Journal. "Auto Loan Interest Rates Are Skyrocketing. No One Told Credit Unions."

  3. Experian. "Used Vehicle Finance Market."

  4. Kelly Blue Book. "Average New Car Price Sets Record."