If you were wondering about the auto-finance market, here is something you would be happy to find out: it is doing very well. Experian Automotive senior product marketing manager Marty Miller confirmed this at the National Remarketing Conference held here in San Diego. Don’t just take his word for it, though—let the third quarter data convince you that this is indeed a good time for auto loan lenders.
Letting the Data Speak for Itself
The credit data tracking firm recently announced that auto loan balances have reached record high since they started doing the public data reports in 2006. Outstanding loan balances in the third quarter ballooned to $782.9 billion, $103 billion more than last year’s amount.
Auto loan balances have advanced all around the country, but it advanced much quicker in some states. These include Nevada, Texas and California.
Another piece of good news: thirty-day loan delinquencies went down. From 2.67%, it dropped to 2.58% during the same time frame.
Experian reported that vehicle repossessions did increase, but that the raise was limited only to finance companies that approved riskier loans. In the third quarter of 2012, repossessions were at 0.40%; same time this year, it was at 0.62%.
The rise in auto loan balances as well as the drop in loan delinquencies are indeed worth celebrating. The good news affects not only lenders but all those involved with the auto industry, including manufacturers, retailers and even car buyers. If the auto industry is strong (and the figures suggest that it is), everyone will benefit.
Reasons Behind Auto Lending Upsurge
The notable increase in auto lending can be attributed to three things: affordable interest rates, available credit, as well as tight competition among creditors.
Interest rates have been kept low by the policy of the U.S. Federal Reserve to keep these near zero. As for credit, it is more available now compared to the last few years when the country struggled with recession. With more of them vying customers, lenders are doing what they can to beat the competition.
However, the behavior of consumers also caused the boost in auto lending. According to Melinda Zabritski, a senior director for automotive lending at Experian, consumers’ consistent loan repayment drove lenders to take more risk and in turn make loans more accessible to car buyers. With more lenders willing to give loans, more people get to make purchases, which then results in higher car sales.
Aside from the aforementioned reasons, the monthly payments—which haven’t changed much in the last couple of years—also encourage more consumers to take out car loans. Low interest rates may encourage auto lending, but longer loan terms are those that truly persuade people to borrow. Miller implied that car buyers keep their monthly payments affordable by opting for longer auto loans. Experian notes that the average loan terms for new vehicles and used vehicles are 65 months and 60 months, respectively.
What to Expect
The year is not yet over, so auto lending can increase further. Considering the slow but steady growth of the economy as well as the fact that auto loan rates will not increase soon, it looks like figures can be expected to rise further.