Shedding Light on the Current Auto Lending Picture

[MarvBear]

Shedding Light on the Current Auto Lending Picture - Dealer Ops - Auto Dealer Today (autodealertodaymagazine.com)

 

There is no paywall, and this is a primary response from a Credit Union standpoint.

[chicagorich]

Interesting that this article uses the term "prime rate" when what the FED does is change the fed funds rate. Each bank then resets its own prime rate.

[hdporter]

On 12/18/2022 at 6:37 PM, chicagorich said:

Interesting that this article uses the term "prime rate" when what the FED does is change the fed funds rate. Each bank then resets its own prime rate.

 

Just means that the article author comes from a non-finance background. 

 

A reasonable point is made (indirectly) that while the prime rate is reliably tied to the fed funds rate, the relationship with actual bank lending rates is softer and more flexible.  Ultimately, a bank's cost of funds is a strong determinant of current lending interest rates.

 

That said, over a longer horizon, the relationship between, and linkage to, various interest rates is relatively stable.  While the CU referenced in the article may have limited it's rate hike on auto lending rates for now, were the current Fed Funds rate to remain intact, it will ultimately match that rate hike.  It will be forced to because it will ultimately be prodded to hike its rate on savings to maintain its funds supply.  (They'll be hard pressed to continue auto loans at, say, 3.5% if they're paying 4% on CD's.)