Credit unions are having a good year when it comes to providing car loans for their customers. In Q4 2022, credit unions provided nearly a quarter of all new car loans and took the top spot when it came to used car loans, providing 31.19% of loans.

In the last quarter of 2022, Credit Unions took the top spot when it comes to how many auto loans they finance. Credit unions gained almost 6% over the fourth quarter of 2021, raising to 29.12% for total auto loans up from 23.49%. Banks dropped into second, providing 27.35% of auto loans, down from 34.79% the year prior.

New car lending is still dominated by captive financing, which makes up 41.04% of new car loans. Credit unions are in third, behind banks which make up 27.53% of the market. When it comes to used car loans, credit unions have climbed significantly over 2021, where they made up just 27.03% of all lending for used cars.

In a report by Experian, Melinda Zabritski, Experian’s senior director of automotive financing, explained that the growth in credit union lending likely has a lot to do with interest rates. Credit unions tend to hold lower interest rates than their competitors, which has led to great lending opportunities in these times when inflation is really hitting the auto lending market.

“The biggest driver of credit union growth was lower interest rates, for both new and used vehicle financing. Even as rates overall have increased, credit unions have managed to be a full percentage point lower than other lenders,” said Zabritsk. “In addition to lower rates, we continue to see fewer incentives from captive lenders, giving credit unions the opportunity to grow market share in the competitive rate environment. Having a broader understanding of data like interest rates can help lenders and dealers make strategic decisions and serve consumers effectively.”

When it comes to new loan rates the latest Experian Automotive State of the Finance Market Report shows that overall rates at credit unions sat at an average of 5.49%, just behind captive lenders whose average rate was 5.45%. Banks averaged a 7% interest rate in Q4 2022. Independent finance companies had the highest rates, lending at around 9.38%.

For used car loans the news was even better from credit unions as they maintained the lowest average rate of any lender type, lending at an average of 7.03%. They're followed by captive lenders with a rate of 9.25% and banks with a rate of 9.34%. Buy here pay here dealers came in fourth with an average rate of around 11.20%.

Credit Unions for Bad Credit Loans

Credit Unions often make a good choice if you're a bad credit borrower looking for a loan. The only catch is that you typically need to be a member of a certain credit union, typically based on your location, occupation, or other associations.

Since credit unions are member-owned, there are not typically as many fees or charges associated with having an account at one. Also, credit unions often have lower rates than competitors and may be able to offer loans to members whose credit isn't in the best standing.

Banks, on the other hand, usually reserve their loans for consumers with the highest credit scores, which is why their rates are often the lowest seen for auto financing. This means they lend to a very narrow customer base, however, meaning securing a loan can be difficult if you have a credit score that falls below 670.

Other Options for Bad Credit Borrowers

Even though a credit union is a good option for car buyers with lower credit scores, they're not always a guarantee for approval. Credit unions aren't your last stop when looking for bad credit lending. Borrowers with less than stellar credit can also shop through a dealership with special financing departments. These bad credit lenders work with dealerships to help borrowers get the loans they need.

However, since you're not pre-approved, subprime lenders that work with bad credit car dealerships require the dealer to check certain requirements before they'll consider you for a loan. You typically need to come prepared with proof of income, proof of residence, a valid driver's license, a working phone number, a list of references, and a down payment.

If a subprime lender isn't in the cards either, the last stop to finding a car loan as a bad credit borrower is typically a buy here pay here dealership. These dealers are also the lender so they often have fewer requirements to get approved for a loan. However, you may be required to provide a larger down payment when you shop at a BHPH dealer.