Credit Unions Dominate The Auto Loan Market Share with Lower Rates

According to Experian's quarterly automotive finance report, credit unions now have the largest market share for auto loans, undercutting banks and auto manufacturers' lenders with generally lower rates.

Credit unions' share of all auto loans increased to 30.7% in the third quarter of 2022, up from 22.8% in 2021. Credit unions held 31.5% of the market share for used car loans, up from 25.5% in 2021.

For new car loans, automaker's lenders, or "captives," continued to dominate the market, accounting for 44.2% of total financing, compared to 25.7% for banks and 23.7% for credit unions. Credit unions, on the other hand, are making rapid progress in this area. Credit unions nearly doubled their market share from 17% in 2021 to nearly double in 2022, while banks and captives lost ground.

According to Experian data cited by The Wall Street Journal, 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, the average interest rate for new car loans was 5.16% and 9.34% for used car loans in the third quarter, up 4.1% and 8.2%, respectively, from the previous year. During that time, average monthly payments for new cars increased to $700 from $618 and for used cars to $525 from $472.

Economic Trends Influencing Auto Loan Interest Rates

Consumers are borrowing more to finance new vehicles in general. According to Experian, the average new loan amount increased by $3,911, or 10.4%, from the previous year in the third quarter of 2022. During that time, used loan amounts increased by $2,255.

In an effort to combat inflation, the Federal Reserve has raised its key interest rate over the last year, and interest rates on other financial products, including auto loans, have risen in lockstep.

Credit unions, unlike banks, are not motivated by shareholder profits. These financial institutions, on the other hand, are owned by their members and tend to provide more competitive products and services. Credit unions may also be less motivated to raise rates than banks because they do not typically bundle and sell their auto loans as bonds to investors, as banks do.

Meanwhile, new and used vehicle prices have been rising due to semiconductor shortages, which are causing supply issues with lagging production. With rising prices, more consumers are opting for used vehicles. According to Kelly Blue Book data, the average price of a new car in November was a record $48,681.