Latest Auto Loan Trends Indicate New Opportunities For Lenders and Consumers in ...

THE AUTO FINANCING INDUSTRY CONTINUES TO EXPERIENCE SHIFTS IN CONSUMER BEHAVIOR, presenting new opportunities for lenders and consumers in 2025.

"With interest rates recently dropping, we see a few areas of opportunity as we prepare to move into 2025," said Tom Aliff, Risk Advisors Leader at Equifax. "One of those areas is lenders likely opening up their underwriting capacity (ability to extend a loan) a bit because of the lower interest rates, which will in turn, allow a consumer to spend more on a vehicle because the cost to finance that vehicle will be less."

In an effort to help lenders get a more accurate financial picture of a potential buyer and help connect them with the right car, data is incredibly important. Alternative data, consumer insights not found in traditional credit reports such as telecommunications, pay TV, and utilities payment history, can provide additional information to help qualify individuals for loans or terms they may not have previously been candidates for under legacy scoring attributes. These additional insights, found in the Equifax Insight Score for Auto solution, can help auto dealers and lenders widen their scope to identify and score more consumers, opening up more opportunities for both parties.

Additionally, the Equifax quarterly Auto Insights Report is a resource for automotive industry professionals that provides in-depth data and analysis of the latest automotive credit trends and industry insights to help lenders, Original Equipment Manufacturers, dealers and service providers navigate the current automotive industry.

Insights from the latest Equifax Auto Insights Report include:

Originations Vary by Generation and Lender Type

Captive lenders, who are tied to specific automakers, continue to dominate in auto loan originations, particularly among Baby Boomers. Captive lenders accounted for 42% of originations for Boomers, reflecting their strong presence in the market.

However, Gen Z borrowers are diverging from traditional financing options.

• 30% of Gen Z borrowers used captive lenders

• 24% used banks

• 29% preferred credit unions

• 9% turned to monolines

"Our latest data shows that more young people are choosing credit unions for their auto loans, which gives these lenders insights on how to market to, and provide financing to, this demographic," added Aliff. "While issues like delinquent payments and fraud are still a concern, being aware of the latest trends gives lenders the ability to stay ahead of risks as the market evolves."

Delinquency Observations

Delinquency rates have risen across all lender types in 2024, with credit unions and dealer finance seeing significant increases. However, the growth rate of delinquencies began to slow from July to August 2024 and remains lower than its peak in 2022. These numbers typically see a seasonal dip in Q2, potentially due to tax returns.

Risk Protection

Fraud, particularly synthetic identity fraud, remains a growing challenge for automotive lenders today. Equifax data reveals that auto loans flagged for Synthetic ID fraud are significantly more likely to default. In August 2024, Synthetic ID fraud was five times more likely to impact credit unions and auto financiers and four times more likely to impact banks. Synthetic fraud also highly correlates with the potential for First Payment Defaults, with an average balance of $31.1K for high-risk accounts.

A layered approach to detecting fraud is a good way to defend against it. Having early alerts in place can warn the dealer/lender to potential or known identity theft and application fraud in real-time and quickly identify identity documents not consistent with issuer formats.

InstaTouch ID is a fast, secure and user-friendly solution that uses Equifax and mobile carrier data to instantly validate customer identities to minimize the risk of fraud in real-time.

Looking Ahead

As customers and lenders prepare for 2025, Equifax emphasizes the importance of leveraging real-time data to stay ahead of emerging trends. Adapting to Gen Z's financing preferences, strengthening fraud detection, and managing delinquency rates will likely be essential aspects to watch for success in the coming year.

With the Equifax Auto Insights Report, auto industry professionals can gain a deeper understanding of the automotive industry, stay ahead of the competition and make informed business decisions.

(c) Equifax Inc. 2024. All Rights Reserved. The statistics provided herein derive from Equifax's internal files and are to be viewed for information and illustrative purposes only.

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