June 15, 2021

Loan-to-value ratios rise in Q1

As the average amount paid for new and used vehicles pushed even higher in the first quarter amid historic inventory shortages, the average loan-to-value ratio rose slightly.

Credit bureau Experian anticipates the second quarter will feature even higher loan-to-value ratios, driven up by surging transaction prices amid the microchip shortage.

“It’s today’s market that’s feeling that more than what we saw in Q1,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions.

The average amount financed on a new vehicle reached $35,392 in the first quarter, up from $33,833 in the first quarter of 2020. The average loan-to-value inched up to 110.18 percent for vehicles originated in the first quarter from 110.03 percent.

Loan-to-value is the ratio between the amount of credit extended for a vehicle purchase and the value of the vehicle at the time of purchase. The value of the loan often exceeds the price of the vehicle to account for additional taxes, fees or finance and insurance products.

Still, higher values on trade-in vehicles amid similar inventory shortages on the used-vehicle side can play a role in mitigating the impact of higher new-vehicle transaction costs, Zabritski said.

“I wouldn’t expect to see any values coming down by any means or any loan amounts coming down,” Zabritski said. “It’s going to be interesting how inventory will play out and if we see lenders opening up and buying deeper based on the consumer availability in the market.”