Credit access improves, but some borrowers turn to credit builder loans

While credit access improved in May and vehicle prices were steady, affordability remained a concern, especially for credit-challenged consumers who face multiple forms of debt. 

The Dealertrack Credit Availability Index increased 2% year over year in May to 96.7 as credit unions and banks loosened standards and approval rates improved. At the same time, the average new-vehicle transaction price ticked up 1% YoY but was nearly flat month over month at $48,799.  

But as student loan payments resume and that debt is again reported to credit reporting agencies, some nonprime borrowers are turning to credit-builder loans and buy now, pay later programs to improve their credit history and finance downpayments for vehicle purchases. 

Meanwhile, in one of the first actions since the Consumer Financial Protection Bureau undertook a more limited approach to supervision under the new administration, the California State Senate passed a bill that would allow dealers to increase document fees to a maximum of $500. The current processing charges, in effect since 2019, are $85 for new cars and $70 for used cars. 

The change would align the state’s processing fees with that of other states but has received backlash from some consumer advocacy groups that claim the uptick is another “junk fee.” 

In other news, Arra Finance acquired Crescent Bank’s $815 million auto portfolio and plans to grow originations by leveraging the bank’s technology stack and dealer base. 

Other auto finance companies have also seen growth in the first part of the year, including Carvana and Global Lending Services.  

In this episode of “Weekly Wrap,” Auto Finance News Editor Amanda Harris, Senior Associate Editor Truth Headlam and Associate Editor Aidan Bush discuss trends in affordability and compliance along with company updates for the week ended June 13.