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It turns out that gas guzzlers aren’t just bad investments for drivers—they’re bad for banks too.
The cost of car ownership has climbed almost 50 percent in the last six years and shows no sign of slowing as gas prices continue to rise while the conflict with Iran drags on. Improving vehicle efficiency is the best way to insulate drivers from oil price shocks. Now, research shows improving vehicle efficiency also insulates lenders from loan defaults and missed payments, suggesting lenders should take vehicle efficiency into account.
A new report from Atlas Public Policy found that drivers purchasing more fuel-efficient vehicles are at lower risk of defaulting on their auto loans, with electric vehicle (EV) drivers—whose cars are the most efficient—leading the pack with a 50 percent lower default rate when compared to drivers of average fuel economy cars. Perplexingly, however, EV drivers consistently face higher loan rates than drivers of less efficient vehicles who default on their auto loans more frequently.
