Photo by Tim Mossholder on Unsplash

 

To Loan or Not to Loan?…Auto Loans

 

What does car ownership look like in 2025? We are not floating around in flying cars like we were promised. In fact, buying and owning a car feels more challenging and complex than ever. Between skyrocketing (pun intended) costs and the interest rate rollercoaster, many people do not know where to begin. In 2022, HFLA launched an auto loan to help simplify the process and make owning a car more accessible. After two years of this loan product, we found more questions than answers. Can we keep up with demand? Do these loans align with our lending principles? Can we manage the mechanics of these complicated loans? 

 

Bloomberg reports that car repossessions increased to 23% in 2024, up 14% from the 2019 pre-pandemic levels. Why is this happening? During the pandemic, lenders were more lenient with payment schedules, giving people some flexibility during those unprecedented times. Times have become… precedented again. Inflation has shifted, and monthly car payments have gone to near-record highs. “The average interest rate for a new car is currently 7.3%, and for a used car, it’s 11.5%, according to Edmunds data. That means, on average, monthly bills are now $739 for a new car and $549 for a used car.” In June 2024, over 5% of auto borrowers were at least 2 months late.

 

Generally speaking, everything is getting more expensive. The cost of living has increased across the board. The Bureau of Labor Statistics reports that the Consumer Price Index has risen 2.7% for the past 12 months (ending in November 2024), with food, shelter, and energy indexes all rising. With personal budgets becoming tight and wages stagnant, there is increased distress on the consumer. People have to choose between rent, food, and utilities. As expenses become overwhelmingly inflated, auto payments become deprioritized, which used to be the priority due to fear of repossession.

 

Where does HFLA fit in all of this?

In January 2022, HFLA began offering auto loans intended to support the purchase of automobiles. Our auto loans went up to $15,000–larger than all of our other personal loans and had a monthly payment of no more than $250.

 

Auto loans have allowed people to purchase a car. But is this just pushing off the inevitable? Cars are expensive investments, and most people’s livelihoods revolve around having one. Cars have become a modern essential, whether people travel to and from work, run crucial errands, make appointments, or work with their car (Ubering or Dooordashing). 

 

But have people become burdened by the same thing meant to assist them? This question led us to pause our auto purchase loans in the Fall of 2024. 

 

One of our borrowers, Pat Nolan, is a perfect case study to follow our position on auto loans.

 

Nolan learned about HFLA after the Western Reserve Land Conservancy bought his home in the Euclid Beach Mobile Home Community. This decision “felt like a rug had been pulled out from under us,” Nolan explained, recounting the community banding together to ensure that their neighbors were treated fairly and given just compensation. Some people, like Nolan, had been in this neighborhood for over 10 years and were not expecting this sudden lifestyle shift. HFLA partnered with the Western Reserve Land Conservancy, making loans to those who needed a little extra to smoothly transition to a new location. 

 

Having to move put distance between him and his mother, who still lived in the area. Our auto loans seemed like a perfect solution.

 

“Cars are great when they work, and they’re a pain when they don’t,” Nolan states. Anyone who has owned a car knows that sentiment well. Nolan purchased a used car and, within a few months, the transmission blew out. Nolan returned to us to increase his loan and beagle to afford the necessary parts. Because he had not borrowed the maximum amount available, we increased his loan, and he received a 3-year unlimited-mile warranty on his transmission. 

 

But cases of unexpected car troubles happened incredibly often to our other borrowers.

 

When it comes to owning a vehicle, there are many moving parts: insurance, car payments, parking fees – without even factoring in unexpected (but inevitable) expenses, like flat tires, busted transmissions, and general damages that occur when simply operating a vehicle. 

 

While people are paying off their car loans, a lot can happen during that period. The average auto loan term is 68 months, and plenty of incidents can happen during that time. This is what makes offering auto loans so tricky. We pride ourselves on helping people get on the path to financial stability. However, many of our borrowers could not get their footing, even with their loans. 

In the situation where someone can no longer pay their auto loan, where does that put us? We are not in the business of repossession; it goes against the very core of our mission. We look to help our community members, not become a threatening presence that can take someone’s livelihood away. Our loans are intended to stabilize individuals and families and help them through treacherous financial times. These loans were increasingly putting people in precarious financial positions. 

 

We continue offering interest-free auto repair loans and refinancing loans up to $10,000. We value our role as a vital community resource. Although our auto purchase loans didn’t go as expected, we’re looking ahead and exploring new opportunities to better serve Northeast Ohio.