In a recent CU Lab discussion with President of NAFCU Services Randy Salser, we discussed the state of auto loan collateral. We discussed some of the intense challenges credit unions face in 2023 and associated tactics to overcome them. In case you missed the podcast episode, here are the highlights:
Vehicle affordability is impacting uninsured collateral.
The reduced affordability of vehicles across the board is bringing delinquencies back fast and furiously. This happens as high interest rates intersect with high vehicle prices, making vehicles less affordable than a few years ago. Insurance premiums are also higher because of higher vehicle values. Borrowers are canceling insurance policies at alarming rates. These factors combined present lenders with a heavy risk of uninsured collateral – collateral that may be valued at less than the loan balance in the event of an accident or total loss. A perfect storm is brewing and delinquencies are at the center. With rising delinquencies and deficiencies, we will start seeing deficiency balances return.
Loan volume is shrinking
The loan demand we saw during the pandemic is dipping as buyers respond to soaring interest rates. Now, if rates come down, we may see demand grow. In the meantime, loan balances have increased by 38% from 2021 to 2023.
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