Inside the Auto Lending Boom
August 31, 2015 11:00 AM
The U.S. auto lending industry continues its multiyear boom. What follows is a look at numerous metrics that reflect the red-hot state of the market.
Vehicle Financing Has Never Been More Popular
In the second quarter of this year, 86% of new car purchases were financed, which was an increase of 6 percentage points from 2010, according to Experian Automotive.
The used-car market saw an even bigger upswing in financing. Fifty-six percent of used-car purchases were financed in the second quarter, up from 47% five years earlier.
Auto Loans Are Getting Bigger
The average new-vehicle financing totaled $28,524 in the second quarter of this year. That was up 13% from five years earlier, according to Experian.
The used-car market also saw a 13% increase in average vehicle financing between the second quarter of 2010 and the same period this year.
Loan Terms Are Getting Longer
Auto loans are taking more and more time for borrowers to pay off. The average term on loans for new cars reached 67 months during the second quarter, one month longer than it was a year earlier, Experian reported. Used-car loan terms were also one month longer, on average, than in the second quarter of 2014.
By lengthening loan terms, lenders can make bigger loans without requiring the car buyers to make larger monthly payments.
Monthly Payments Are on the Rise, Too
Despite the longer loan terms, average monthly payments are also on the rise. For new cars, they reached $483 in the second quarter, Experian found. That was up from $467 a year earlier and from $450 in the second quarter of 2010.
The average monthly payment for a used car was $361 in the second quarter, which was up 2% from a year earlier and 5% from five years prior.
Leasing Is Also Becoming More Popular
The auto-leasing business is enjoying strong growth. In the second quarter, 27% of all new vehicles were leased, up from 19% five years earlier, according to Experian.
Banks Are Mostly Avoiding the Riskiest Loans
Roughly 16% of banks' loans for used cars go to borrowers with credit scores below 600, according to Experian. At credit unions, a slightly lower percentage of used-car loans go to the riskiest borrowers. But the share of loans that go to borrowers with blemished credit is 21% at the finance arms of auto manufacturers and 71% at other auto finance companies.
Bank's Delinquency Rates Remain Relatively Stable
Numerous metrics suggest that the risks in the auto lending business are increasing. But those factors are not leading at least so far to sharply higher rates of late payment on bank-originated auto loans.
During the second quarter, the 30-day delinquency rate for bank loans arranged through auto dealers was 1.58%, according to the American Bankers Association. That was up slightly from 1.53% a year earlier, but still well below the 2.60% delinquency rate hit in the third quarter of 2011.
Everything's Bigger in Texas
The nationwide trends conceal some interesting state-by-state variations. The average auto loan in Texas was $22,581 during the second quarter, which was about 26% bigger than in Florida and California, according to TransUnion.
Delinquency rates were also significantly higher in Texas - 34% higher than in Florida, and 69% higher than in California.
