Credit Unions Worry Most About Over-Extension on Used Vehicle Loans, says New Survey -- But Long-Term Loans Still Proliferate

Mark Chandler

Over-extension on used vehicle loans is the number one concern for credit unions in the 2023 auto finance landscape, according to Credit Union Leasing of America’s (CULA) Q2 2023 Credit Union Used Vehicle Loan Snapshot. But, the results, which are based on an online survey of credit union professionals, indicate that credit unions continue to offer car buyers a significant percentage of longer-term loans, with low down payments, on high mileage older vehicles – and the majority are extending LTV by over 125%.

“It was no surprise to us that over-extension on used vehicle loans is generating significant worry for credit unions, as is overall used vehicle affordability, but the results also uncovered a troubling disconnect: credit unions continue to offer car buyers a significant percentage of longer-term loans, with low down payments, on high mileage older vehicles and increased LTV,” said Mark Chandler, VP of Business Development for CULA.

Seventy percent of the credit union respondents say their longest-term loans are 72 months or more, and the majority will lend $75,000 or more on a used vehicle, with nearly one-third saying they would lend $100,000 or more. Meanwhile, 76% report a mileage limit on their used vehicle loans of 75,000 miles or more, with 30% extending that limit to 100,000 miles or more. The majority say they require a 10% or less down payment on used vehicle loans. Only 14% ask for more than 20%.

“As these survey results make clear, credit unions will continue to incur unnecessary risk if they don’t find an alternative to the long-term used auto loan, which they are continuing to offer in significant numbers – and on vehicles that present potential risk,” continued Chandler.

The results also confirm that the majority (52%) of credit unions’ used vehicle auto finance customers are most interested in long term loans of 7 years or more. But, nearly half (48%) are most interested in short term loans – the usage of a newer vehicle for a low payment.  This almost even split is probably due to high used vehicle prices: consumers are either looking for the lower payments of a long-term loan or the lower commitment of a short-term loan.

“The vast majority of credit unions in this survey agree that they would like a better alternative, such as short-term financing with affordable payments and higher yield. Vehicle leasing, which checks all of these boxes, might just be the answer credit unions are seeking,” concluded Chandler.
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Key Survey Takeaways

• 64% of credit union respondents cited over-extension on used loans as their biggest concern about the 2023 auto finance landscape, followed by skyrocketing vehicle prices.
• Auto finance customers today, say respondents, are almost evenly split in interest between long-term (52%) and short term (48%) loans.
• At least one-in-four used vehicle loans are 72 to 84 months for the vast majority (78%) of credit union respondents.
• 72% of credit union respondents say their longest-term loans are 72 months or more, with 28% saying that 84-month loans are their longest term.
• Of those credit unions reporting that 84 months are their longest-term loans, 55% say those make up one in five or more of their loans, with nearly a third saying that they make up over 40% of loans.
• 58% of credit union respondents require a 10% or less down payment on used vehicle loans.
• 55% of credit union respondents say they will extend LTV on used vehicle loans by 125% or more.
• 76% of credit union respondents have a mileage limit on their used vehicles of 75,000 miles or more, with 30% extending that limit to 100,000 miles or more.
• 71% of credit union respondents will lend $75K or more on a used vehicle, with nearly one-third (31%) saying they would lend $100,000 or more.

To download CULA’s “Q2 2023 Credit Union Used Vehicle Loan Snapshot” click here.

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