Lending Perspectives: There’s no such thing as a free (car) ride

Assess how your future losses may vary from recent history.

Whether you believe used car values are declining due to high interest rates, an improving (or worsening, depending on your perspective) inventory of new cars, or a slowing economy, the seemingly “free ride” car lenders have enjoyed for the last two years is nearing an end, if it’s not already over.

All auto lenders have benefitted from strong car values the last few years, although the market is changing rapidly. What risk does your credit union face? Here are some thoughts on a methodology to assess how your future losses may vary from recent history.

What Free Ride?

I suppose the Consumer Financial Protection Bureau thinks that lenders have enjoyed a free ride over the last few years as used car values have been at all-time highs. Anyone with a slightly more-than-casual understanding of the lending business understands that 99.99% of lenders look at repossession as a last resort. I can count on one hand the number of cars Ent has repossessed in 20 years where we got every penny owed by the member at sale. We don’t want to repossess but sometimes we don’t have any other choice to collect a portion of the loan balance. Clearly, we haven’t had a “free” ride, but for sure we have enjoyed a reduced-price ride the last few years.


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