On January 29, the Consumer Financial Protection Bureau (CFPB or Bureau) released a report analyzing the auto lending market’s impact on servicemembers. This report indicates that servicemembers face heightened financial challenges in the auto lending market, including higher loan amounts, interest rates, and monthly payments. Despite these challenges, servicemembers were less likely to experience vehicle repossessions.

The Bureau noted the unique challenges faced by servicemembers, such as frequent relocations and deployments, which can impact their financial stability. The geographic isolation of military bases often limits servicemembers’ purchasing and financing options, making them more susceptible to deceptive lending practices. Given the high reliance on vehicles for military duties, the percentage of servicemembers owning at least one vehicle is likely higher than the general population. According to the CFPB, debt is especially concerning for servicemembers as it may jeopardize their chance to receive and maintain a national security clearance. In addition, servicemembers who fail to pay their debts also face unique consequences such as military disciplinary action, delayed career progression, and termination from employment. While there are federal protections like the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA), these have limitations. The SCRA provides protections for obligations created before active duty, and the MLA excludes from its definition of “consumer credit” any credit transaction that is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the vehicle being purchased.

The CFPB’s auto finance data pilot included data from loans originated or serviced between January 1, 2018, and December 31, 2022. The dataset comprised approximately 33.8 million loans, with over 200,000 involving servicemembers. The analysis compared loan attributes and outcomes between servicemembers and non-servicemembers.

Key Findings

  • Higher Loan Amounts for Servicemembers:
    • New Vehicles: Servicemembers financed an average of $39,000, which is $2,200 more than non-servicemembers.
    • Used Vehicles: The average amount financed by servicemembers was over $27,500, approximately $400 more than non-servicemembers.
  • Similar Vehicle Prices:
    • New Vehicles: Servicemembers paid about $45,000, which is $500 more than non-servicemembers.
    • Used Vehicles: Servicemembers paid nearly $30,000, about $460 less than non-servicemembers.
  • Down Payments:
    • Servicemembers were less likely to make cash down payments.
    • When they did, the down payments were smaller by about $1,100 for new vehicles and $500 for used vehicles compared to non-servicemembers.
  • Negative Equity Trade-Ins:
    • Servicemembers were more likely to trade in vehicles with negative equity.
    • The average negative equity for new vehicle purchases was $5,900, $240 more than non-servicemembers.
    • For used vehicles, the average negative equity was almost $4,000, $130 more than non-servicemembers.
  • Add-On Products:
    • Over 70% of both groups purchased at least one add-on product.
    • Servicemembers spent more on add-ons, with an average of $3,300 for new vehicles and $3,000 for used vehicles, which is $140 and $60 more, respectively, than non-servicemembers.
  • Interest Rates and Loan Terms:
    • New Vehicles: The average APR for servicemembers was 5.3%, 0.6 percentage points higher than non-servicemembers.
    • Used Vehicles: The average APR was 9.3%, 0.6 percentage points higher than non-servicemembers.
    • Loan terms were longer by three months for new vehicles and one month for used vehicles for servicemembers.
  • Monthly Payments:
    • New Vehicles: The average monthly payment for servicemembers was over $644, nearly $20 more than non-servicemembers.
    • Used Vehicles: The average monthly payment was over $500, $7 more than non-servicemembers.
  • Repossessions and Loan Modifications:
    • Servicemembers were less likely to have their vehicles repossessed or voluntarily surrendered, with rates approximately half of those among non-servicemembers.
      • Federal and state protections for servicemembers regarding property repossessions may explain, in part, the lower rate.
    • Loan modifications were slightly less likely among servicemembers.
      • The loan modification data did not allow the Bureau to determine if servicemembers had less need for or less access to loan modifications.

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