A report by Atlas Public Policy indicates that vehicle fuel efficiency correlates with the borrower's ability to repay auto loans. Drivers of fuel-efficient vehicles show a lower risk of default compared to those driving vehicles with average fuel economy.
Data shows that owners of electric vehicles are 50 percent less likely to default on their loans than those with average fuel economy cars. Drivers of hybrids and plug-in hybrids are 16 percent less likely to default, while financing less efficient vehicles increases default risk by 16 percent.
Despite lower default risks, electric vehicle buyers often face higher loan rates than purchasers of less efficient cars. Borrowers buying EVs pay between $300 and $350 more over a typical 72-month loan compared to the average borrower.
The study suggests that lenders should incorporate vehicle efficiency into risk assessments. Adjusting loan terms to reflect this risk could improve affordability for borrowers and reduce potential losses for financial institutions.
Captive lenders, such as Ford Credit, GM Financial, and Toyota Financial Services, could utilize fuel-efficient lending to help parent companies meet fleet-wide fuel economy targets while managing their own loan portfolios.
