When Rates Take a Hike, Do Auto Lenders Change Strategies?

Ongoing digitalization, unpredictable inflation, increasing cost of funds, changing consumer expectations and an emerging wave of defaults have combined to create turbulence in the auto finance industry.  

The average interest rate on a new car loan rose to 8.95% in March, up from 5.66% a year earlier, according to Cox Automotive. For used cars, the rate hit 11.3% last month, up from 7.7% in 2022, according to Edmunds. 

Delinquencies are on the rise, especially for younger borrowers, according to a recent study by the New York Federal Reserve.  

Lenders are responding by undertaking a variety of strategic shifts. Some have raised prices indefinitely while others are pausing to regroup and reprice with an eye to avoiding undue risk exposure. Still, others are pricing aggressively to gain market share. These shifts are reverberating across the entire auto finance landscape. 

Is the concern enough to cause strategic or technological shifts, and if so, where do auto lenders go from here? 

Auto Finance News spoke with Be’eri Mart, head of banking and auto finance at Earnix, a global AI provider focused on optimizing and personalizing consumer lender experiences for a variety of financial institutions, on how lenders are managing their portfolios.