Modest-means members

Some—bankers in particular—say credit unions have lost their way, are no longer mission-focused, and have abandoned those of modest means. But Equifax data clearly shows that credit unions are collectively focused on responsibly serving all consumers, especially those of modest means, with auto loans.

Specifically, the data shows that banks are 1.3 times more likely than credit unions to originate auto loans to “super prime” borrowers, those with credit scores above 720. Overall, 65% of banks’ auto loan originations go to consumers in this high credit tier.

In contrast, only 51% of credit union loans are concentrated in the upper reaches of the credit scoring continuum.

At the other end of the spectrum, credit unions are 1.6 times more likely than banks to originate auto loans to consumers with nonprime credit scores (i.e., scores below 660). Overall, 23% of credit union auto loan originations are to consumers with below-prime scores, while only 14% of bank originations occur in that market segment.

Part of the attraction to credit union auto loans is favorable pricing. In mid-August 2022, Datatrac auto loan interest rates for A-paper borrowers averaged 4.72% at banks but only 3.52% at credit unions. That 120 basis point difference means that a consumer who finances $38,000 on a five-year term will save roughly $1,300 over the life of the loan if originated at a credit union rather than a bank.

We’re evaluating implied interest rates in the Equifax dataset. This should give us solid data on average finance rates across the credit score spectrum, not simply within the upper tier.

We’re confident that, using Equifax data, we’ll have an even more compelling story to tell. The data will likely show that borrowers with lower credit scores save $7,500 to $10,000 over their loan term by financing at a credit union compared to what they’d pay elsewhere.

In any case, credit unions’ favorable pricing makes auto loans more affordable, and the strong credit union culture of consultation and member-centric financial counseling ensures members know what they’re getting into.

As a practical matter, that means credit union members are more likely to pay their automobile loans on time, reflected in substantially lower delinquency rates.

This also is abundantly clear in the Equifax data. Overall auto loan delinquency rates at credit unions are far lower than those at banks and auto finance companies.

Mid-year 2022 data shows that bank auto loan delinquency rates are roughly 1.3 to 1.4 times higher than credit union delinquency rates across the credit score spectrum. Auto finance company delinquency rates are 2.5 to 3.0 times higher than credit union delinquency rates.

The record is clear: Using on-time payments as an indicator, credit union members reflect higher levels of financial stability and resilience than consumers who borrow from banks and auto finance companies. This is true across the credit spectrum.

“My story” is really the credit union story. Credit unions clearly stand out in the auto finance arena. Don’t take it for granted. Measure your impact. Tell your story. Seven times, seven ways.

MIKE SCHENK is chief economist and deputy chief advocacy officer at Credit Union National Association. Contact him at 608-231-4228 or at mschenk@cuna.coop.