The auto-lending industry has been on a tear in recent years, with lenders eager to take advantage of the huge demand for new cars. The market is expected to grow further as more and more people buy cars powered by alternative fuels like electric or natural gas instead of gasoline.
Auto lending is still motoring along, with the best private party auto loans. Auto lenders are now able to offer loans in a variety of ways and at a variety of rates.
Even if the car industry isn’t yet firing on all cylinders, banks are managing to expand auto-lending balances.
REUTERS/Mike Blake photo
12:09 p.m., April 20, 2022 ET
To overcome some of their recent issues, banks will need strong loan growth. So long as banks don’t break any speed restrictions, auto financing might help.
According to figures tracked by analysts at Piper Sandler, the average growth year over year in auto loans was just over 13% in the first quarter across several large banks with auto-lending units—a group that includes Ally Financial, ALLY -1.25 percent, JPMorgan Chase JPM 0.35 percent, and Wells Fargo WFC 1.71 percent. According to Federal Reserve figures, this is more than double the rate of total loan growth among U.S. banks in the quarter.
At the same time, according to recent estimates from industry tracker Cox Automotive, new-vehicle car sales declined significantly to start the year, in what was likely the worst first quarter for unit sales volume in a decade. Similarly, used-car prices slowed in March in certain ways. As a result, banks are able to increase auto-lending balances despite the fact that the car industry isn’t exactly firing on all cylinders.
For the time being, high total car costs may aid dollar volume growth. According to Piper analyst Kevin Barker, given the fundamentals of the car industry, where supply is severely limited, loan growth is expected to stay resilient. “There’s plenty of underlying demand if more automobiles are manufactured, even if prices fall,” he added.
The greater concern for investors should be whether auto-loan pricing would be squeezed as lenders seek to expand. As benchmark interest rates climbed, several banks reported narrower spreads on vehicle loans, as well as the effect of competition on what they may charge borrowers. Pricing is always crucial, but it is more so today because of a few variables.
Because banks’ liability costs are anticipated to climb in lockstep with interest rates, any price pressure on loan yields may be felt more sharply than it was when rates were falling. Furthermore, high used-car values need careful underwriting based on the collateral’s current worth. Ally said it was incorporating “extra fees” to help cover the expense of future defaults.
How these sorts of pricing changes affect volume growth is partially determined by how banks operate together. The circumstances are in place for further solid auto-loan growth, given the high demand for autos and consumers’ still-sound balance sheets. But only if the laws of the road are followed by lenders.
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The print issue of the April 21, 2022, was published.
Auto Lending Is Still Motoring Along. Auto loans are still a popular way to finance a car purchase. The high interest rate is not the only benefit of an auto loan, as the terms can be tailored to meet your needs. Reference: high interest car loan.
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