Rising benchmark interest rates are moving borrowing costs higher as strong returns continue to attract investors to auto paper.
“The increase in rates and what we see with SOFR and Treasuries will impact our cost of funds,” SAFCO President Jason Person said during a capital and credit panel last week at Auto Finance Summit 2026 in Las Vegas.
“We need to react to and make sure that we’re pricing appropriately so we can [maintain] our returns.”
The subprime auto lender is seeing strong interest in its asset class from investors, which include private equity and warehouse vendors, Person said, adding that it aims to go to the securitizations market annually despite market conditions, albeit with focus on deal pricing.
The Secured Overnight Financing Rate (SOFR) rose in mid-September, tracking in line with the Federal Reserve‘s benchmark rate hike to a range of 3.75% to 4% that month.
SOFR daily rates, published every business day by the Federal Reserve Bank of New York, rose to 3.85% on Sept. 17 from 3.62% on Sept. 16. Daily rates hovered between 3.85% and 3.9% through Oct. 14.
While the Fed rate isn’t always a direct correlation to cost of funds, costs have increased, which can create depression in the market, Nadir Jones, head of auto finance at TD Bank, said during a fireside chat at the summit.
“We’re … not pushing all those rates through to the consumer,” he said. “We continue to work with our dealers [to create] the best structures as possible.”
‘Good sign’ for credit availability
Despite higher cost of funds, credit is available in all parts of the capital stack, with warehouse lenders ready to deploy credit and credit funds that want supportive credit, Erik Laney, chief financial officer at Santander Consumer USA, said during the panel.
“It’s a robust market right now,” Laney said.
“What we’ve seen is as rates rise, credit spreads fall,” he added, noting that is “a good sign in terms of credit availability.”
All-in yields, with rates rising, also keep asset-backed securities “on the forefront of investors’ minds,” Jeff Mullins, senior vice president of capital markets at Oregon Community Credit Union, told AFN in September.
The credit union issued a $307 million prime deal in August that received favorable participation from investors, he said.
The 30-day average SOFR was 3.85% Oct. 14, down from 4.19% a year prior but up from 3.64% a month prior.
Broadly, the SOFR Index, which tracks the cumulative compounded effect of short-term funding costs in capital markets, increased 3.84% year over year as of Oct. 14. The index rose 0.32% month over month to 1.26, according to the data.
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