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Credit union rates contribute to record-setting 2013 in auto lending

Americans have received car loans with unprecedented regularity over the past year, and are generally paying significantly less in doing so.

Favorable rates offered by credit unions have reportedly contributed to the record auto loans figures exhibited in the U.S. during 2013.

Americans have received car loans with unprecedented regularity over the past year, and are generally paying significantly less in doing so, according to a recent report by Credit Unions Online. Credit unions, often offering favorable rates of interest and subjected to a cap around 18 percent of a car's total value, are partially responsible for a sizeable portion of loans that, according to Experian, have been granted with a frequency and at prices not seen since prior to the recession.

Competition breeds a buyers' market
Auto loan borrowing increased by an average of $756 per loan, with the average loan during the third quarter of 2013 totaling $26,719. That figure represents the highest average financing amount on car loans since 2008, when such data was first being tracked by Experian. As traffic in the auto loan market has picked up, so has competition, and interest rates have fallen accordingly. The average auto loan interest rate fell 26 basis points to 4.27 percent during the third quarter, while the average monthly car payment for a new vehicle rose by $6 to $458.

Credit Unions Online offered a brief sampling of some of the deals being offered on auto loans by credit unions around the country, providing some insight into the attractive terms many borrowers are being extended.

For example, Public Service Credit Union of Denver offered auto loans with an attached 1.75 percent APR and no payments for 75 days through Dec. 31. NGH Credit Union in Nashville, Tenn., promoted a loan-rate match program as well as an offer of 1.85 percent APR for qualified borrowers with top credit profiles. City County Credit Union of Fort Lauderdale, Fla., advertised new auto loans for as low as 1.89 percent APR, as well as special discounts for loyalty members. At California Coast Credit Union in San Diego, auto loan shoppers can secure rates as low as 1.98 percent for new vehicle purchases.

While credit unions have always offered attractive rates by virtue of the not-for-profit status, the bar has apparently been lowered even further in 2013. According to the National Credit Union Association, new auto loans were approved by its member institutions for a total of $69 billion during the third quarter of 2013, a 4 percent increase from the second quarter and a gain of 11.4 percent since the third quarter of 2012.

"Federally insured credit unions are on the right course," NCUA Board Chairman Debbie Matz said in a statement. "The good news is we continue to see strong, positive trends in the industry. Credit unions are serving their members and investing in their communities by making the loans needed to purchase homes, buy cars and go to college. That said, smaller credit unions still face challenges in growing loan volume, generating earnings and attracting members, so NCUA must continue to provide them with needed assistance, training and support."

Many credit unions have reported record years in terms of auto loans, both in the frequency and the amounts at which they were approved. The Virginia Credit Union League, for one, reported one of its strongest loan quarters ever, as a "record-setting performance in loan originations was led by loans for new and used automobiles, with year-over-year growth of 29 percent and 20 percent, respectively."

Park Community Federal Credit Union of Louisville, Ky., also reported a banner year, according to Credit Unions Online.

"We have had a huge year in auto loans," CEO Jim Spradlin stated. "Auto loans have generally been a credit union's bread and butter."

Spradlin added that the credit union's auto loans rose by approximately $60 million year over year.

End-of-the-year sales have buoyed credit union loan numbers as well. Year-end sales blowouts promoted by car dealerships - combined with the aforementioned attractive rates and terms attached to credit union financing plans -  are bolstering a rejuvenated auto loan industry. With competition so fierce, prospective buyers have only needed to do a little shopping to find favorable terms before often being pre-approved at a credit union or elsewhere.

Many dealership financing plans have reacted accordingly, offering zero percent financing over a certain length of the loan or on new vehicles, but typically only to borrowers with the best credit. Larger banks have gotten in on the auto loan boom, as well, although they usually can't compete with credit union financing rates that are often under 2 percent for pre-approved borrowers. As a result, the fourth quarter of 2013 is forecasted to produce the most eye-opening numbers of the year, both in terms of sales and loans. With dealerships looking to move inventory before the new year and lenders competing for a resurgent crop of car buyers, the perfect confluence of events has taken shape for the auto lending industry.