“Financially healthy” auto loan borrowers are in decline

Auto lenders are facing a growing number of customers challenged to meet their financial obligations, according to a J.D. Power study.

The details: The J.D. Power study – based on responses from 11,071 customers who financed a new or used vehicle through a loan or lease within the past three years − zeroes in on three concerning trends regarding the financial status of auto-loan customers. 

• The number of auto loan customers characterized as “financially vulnerable” has increased 11% since 2021. 

• On the other hand, the number of auto loan customers characterized as “financially healthy” has decreased by 13%.

• Even more alarming, of the “financially vulnerable” customers, only 1% of them say they can cover six months of living expenses. 

More finds: The study also identified the highest-ranking financial services in terms of customer satisfaction among premium lenders.  

• Lincoln Automotive Financial Services ranks the highest for consumer satisfaction, scoring 722 on a 1,000-point scale.  Mercedes-Benz Financial Services (719) and BMW Financial Services (703) ranks second, and third, respectively, for consumer satisfaction. 

• Ford Credit has the highest ranking among mass market lenders, scoring 669 in customer satisfaction. Southeast Toyota Finance (664) and Toyota Financial Services (650) ranks second and third, respectively in the category.  

What they’re saying: “Lenders need to ensure that their digital bill-pay tools encompass a wide range of options, such as extensions, due date changes, personalized financial planning/budgeting tools and one-on-one advice to help consumers plan for the future,” said Patrick Roosenberg, senior director of automotive finance intelligence, J.D. Power

Why it matters: The increasing financial vulnerability of auto loan customers could potentially lead to more loan defaults and car repossessions, which soared 23% in July compared to the same time last year. This, coupled with the current state of interest rates and the average transaction price for a new vehicle ($44,467, according to J.D. Power), speaks to the necessity of measured lending practices.

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