Auto Loan Residual Values At Historic Highs

The COVID-19 pandemic brought about disruptions and changes to the auto market that likely won’t be seen again once the world is fully back to normal. While buyers and lenders alike have been hit hard by the negative consequences, such as lack of inventory due to the shortage of key components, current auto loan borrowers are beginning to see an immediate benefit to selling their car that they didn’t expect: higher residual values.

According to a J.D. Power Valuations Services senior manager of market intelligence David Paris, at the end of 2020, his unit expected residual values for an average three-year-old vehicle to be 49.4% of its original sticker price by the end of 2021, but now he expects those values will be 65%.

For credit unions, this will likely have an impact on the monthly payments that your borrowers make. At least for the next few years, higher monthly payments on auto loans will be the norm, and in the long run, this can make purchasing and owning a car more difficult for your members. Credit unions will need to help their members who need a car most figure out a payment plan they can afford until the supply returns to normal levels and the market balances itself out.

Auto Loan Residual Values At Historic Highs

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