Carvana Revises Lending Rules Amid Industry-Wide Rise in Delinquencies

Online car retailer Carvana is tightening its lending standards in response to higher delinquency rates.

The company is requiring higher down payments from customers and placing limits on maximum payments, Chief Financial Officer Mark Jenkins told Bloomberg News in a report posted Friday (March 1).

Jenkins said Carvana has become more selective about who it lends to, trimming the bottom quintile of its internal credit score by about a third in recent months, per the report.

Carvana’s move to tighten lending standards is driven by the combination of rising used-vehicle prices and higher interest rates since the pandemic, per the report.

The news comes as the industry as a whole is experiencing higher delinquencies and losses compared to pre-pandemic levels.

The Federal Reserve Bank of New York’s Center for Microeconomic Data said in a quarterly report released Feb. 6 that on an annualized basis, about 7.7% of auto loans have transitioned into delinquency status.

The report found that 4.8% of auto loans were in serious delinquencies for consumers 18 to 29 years old, up from 4.3% last year. For consumers between the ages of 30 and 39, the delinquencies 90-plus-days past due grew from under 3% at the end of 2022 to a recent 3.6%.

The Fed also reported that auto balances rose by $12 billion to end 2023 at $1.61 trillion.

After facing challenges in 2022, Carvana reported $150 million in net income for 2023 and booked $10.8 billion in total revenue for the year, according to Friday’s report from Bloomberg News.

However, Carvana continues to face financial challenges, according to the report. The company reported net debt of $5.1 billion for 2023 and interest payments of $632 million, up from $486 million the previous year.

To support its growth, Carvana is hiring again after reducing its headcount from 21,000 full- and part-time employees in 2021 to 13,700 in 2023, the report said. Today, the company currently has over 600 open positions.

Carvana remains committed to securitizing consumer loans in 2024, despite questions raised by analysts, per the report. The company issued nine securitizations in 2023 and one in the first quarter of this year. While some believe that Carvana’s approach to securitizations may be less conservative compared to other companies, it remains a significant source of earnings for the company.