Military borrowers typically have larger loans, make smaller down payments, and ultimately shoulder higher monthly costs in the car-lending market, the federal consumer financial protection agency said Wednesday.
In a report, the Consumer Financial Protection Bureau (CFPB) said that, while military servicemembers pay nearly the same as do civilians for both new and used vehicles, servicemembers on average pay more in interest and fees than civilian borrowers do. The bureau also said servicemembers make those higher payments for longer.
“Military borrowers are also less likely to make a downpayment, more likely to make a smaller downpayment, and more likely to make a negative equity trade-in,” the agency said in a release. “Because servicemembers are often required to have a personal vehicle for transportation in order to fulfill their military obligations, and because they may be young men and women far away from family supports, they may be especially vulnerable to overreaching lending practices and have fewer resources to draw upon.”
The bureau said its report is based on more than 20 million auto loans originated between 2018 and 2022.
The agency said its report has three key findings:
- Servicemembers borrow more while putting less down: For new vehicles, servicemembers borrowed an average of $39,000 – more than $2,200 more than civilians – while putting down about $1,100 less in down payments. For used vehicles, they financed $27,500 on average, which is almost $400 more than civilians.
- Military borrowers pay higher rates over longer terms: Servicemembers faced average annual percentage rates (APRs) 0.6 percentage points above civilian rates and longer loan terms. This has resulted in servicemembers’ monthly payments averaging $644 for new vehicles, nearly $20 more than for civilian borrowers and nearly $1,300 more over the life of the average new vehicle loan.
- Add-on products, including Guaranteed Asset Products (GAP), increase costs further: More than 70% of servicemembers purchased add-on products and paid on average about $140 more for add-on products than civilians. Warranty, service, and maintenance plans were the most common and expensive category of add-on products purchased. The second most common was GAP products. Servicemembers’ purchase of GAP products increased sharply in 2020, after the Department of Defense changed its interpretation of the Military Lending Act.
CFPB Finds Servicemembers Pay More in Auto Lending Market