The average borrower taking out a used car loan in the first quarter of 2023 borrowed 125% of the value of the car they bought, according to a new study.
Researchers from TransUnion and J.D. Power write, “As vehicle values have declined in recent quarters, used car loan-to-value ratios at origination have trended in the wrong direction for consumers.”
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The average loan-to-value ratio sat at 110% in the first quarter of 2022 and 104% in 2021.
The increase comes partly because of inflated used car prices late last year. TransUnion Senior Vice President Satyan Merchant explains, “To a large extent, used vehicle values were elevated as a result of the scarcity brought on by pandemic-related supply chain and inventory issues. As those issues have abated, and inventories have begun to return to more of a normal state, the value of those used vehicles have begun to decline.”
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That can leave borrowers underwater — owing more on a used car than its present market value.
Borrowers with quickly depreciating vehicles, the researchers write, are “more likely to go delinquent.”
