Better Car Loan Rates at Credit Unions Gets National Attention

12/28/2022 

NEW YORK–Credit unions are getting some national attention for their rates on auto loans.

Under the headline “Auto-Loan Interest Rates are Skyrocketing: No One Told Credit Unions,” the Wall Street Journal noted credit unions charged an average interest rate of 5.94% for used cars in third quarter, while banks were charging an average rate of 8.36%.

“Auto lending is a bread-and-butter business for credit unions, and it isn’t unusual for them to beat the competition. But the extent to which they are doing so when rates are rising and other lenders are pulling back is drawing attention across the consumer-lending markets,” the Journal stated.

The gap between the CU average of 5.94% and the bank average of 8.36%--which is based on data from credit-reporting firm Experian--widest in at least five years, according to the Journal report.

For new cars, credit unions charged 4.43%, versus banks’ 6.06%, the report added.

“They kept rates low when the rest of the market just exploded,” John Toohig, who trades credit unions’ auto loans as head of whole-loan trading at Raymond James, told the Journal.

One Borrower’s Story

The report profiled one person, Nick Honko, a doctor in Charleston, S.C., who said he had shopped around at banks when he was buying a new car over the summer, but “credit unions were just a ridiculous deal,” he said.

Honko got a 2.99%, 84-month loan through Carolina Cooperative FCU. He told the Journal he initially was using a credit card to make his loan payments and collect cash-back rewards, but CCFCU later started charging for that option. Honko told the Journal the rate is so low that he earns more interest from stowing cash in his high-yield savings account that currently earns 3.3% than he pays in interest on the auto loan.

Why CUs Have ‘Flexibility’

William Hunt, senior analyst at Callahan & Associates, told the Journal that unlike finance companies and the lending arms of auto makers, credit unions typically don’t pool auto loans into bonds and sell them to investors.

“Keeping loans on their balance sheets gives them flexibility to veer away from the rest of the market,” the Journal said.

Credit union advocates also say that their lack of shareholders means they can focus on customers instead. 

The Journal also noted that credit unions now have a bigger share of the auto-finance market than any other type of lender, closing the third quarter with 28% of all auto financing, up from 20% a year earlier, according to Experian.

CUToday