As reported in USA Today, this month used car payments hit a record $400 per month and used car vehicle values jumped over $20,000 for the first time. Higher demand for used vehicles, along with continued inflation in new car pricing and higher interest rates, have pushed payments to their highest level on record in the used car market. Both factors combined have also increased pressure on loan terms, as they now average 66.9 months according to Edmunds, also the highest ever.
The rising prices, payments, and terms directly impact the pricing of key products that auto lenders rely on Blanket VSI Protection, Collateral Protection Insurance (CPI), and optional GAP Protection. Blanket VSI and Force-Placed CPI pricing have been climbing steadily as heightened technology has put continued upward pressure on vehicle repair costs. Now with higher vehicle prices, longer terms and higher payments, the remaining balances on loans will be even higher as paying loans down take longer. This means that any total physical damage loss, theft, or unrecovered skip loss will have higher payouts on VSI and CPI programs. Additionally, one of the common coverage enhancements of the Golden Eagle Insurance VSI product has a lender GAP provision which adds an additional amount to our payout on these claims, providing the lender with extra protection for depreciation. This additional protection gives lenders a claim payout that is closer to the higher balances lenders are seeing when a total damage, theft, or skip loss occurs.
On the GAP Waiver product, the higher vehicle prices actually reduce the payouts somewhat as the used vehicle market recovers. However, the opposite effect takes place with higher payments, longer terms, and higher prices. Balances will decline at a slower rate which puts pressure on the gap between the balance and the vehicle's value when a total loss occurs. The net result has been an increase in GAP claim payouts.
Regardless of your provider, lenders should be aware that the vendors in these product lines have been and will continue to have increasing claim payouts which may cause price/premium adjustments. If you already have an excellent vendor that provides great service and top-notch claims, make sure that the price to borrowers is commensurate to the increasingly important added value offered by Blanket VSI, CPI, and GAP protections. All of these protections are even more valuable to lenders in reducing overall loan losses and risk.