Auto lending on the rise, but with caution, study says
Auto lenders aren’t quite throwing "caution to the winds," even though they made bigger loans, at lower interest rates, and approved customers with lower average credit scores in the second quarter of 2012, according to Experian Automotive.
Lenders are loosening credit in many other ways, but they’re keeping a tight rein on loan-to-value (LTV) ratios, said Melinda Zabritski, director of automotive credit for Experian Automotive.
“There is still a strong sense of managing risk,” she said in a written report.
The LTV is the value of the loan expressed as a percentage of the value of the vehicle.
In the second quarter, the average LTV for new vehicles was about 110 percent, down from about 116 percent a year earlier, she said.
The average LTV on used-vehicle loans was virtually flat at about 127 percent, up less than one percentage point from 126 percent a year earlier.
The higher the LTV, the smaller the down payment required. Customers can also use the higher amount to pay off negative equity on their trade-in. A higher LTV also allows dealerships to add the cost of add-ons like extended-service contracts to the same finance contract as the vehicle, an important selling point. A lower LTV is the opposite.
By most other standards, auto loans were easier to get in the second quarter, according to Experian Automotive.
The average amount financed for new vehicles was $25,714 in the second quarter, up $474 or 1.9 percent from a year ago, the credit bureau said. For used vehicles, the average amount financed was $17,433, up $370 or 2.2 percent.
The average credit score for new-vehicle loans was 753, down from 763 a year earlier. Experian considers the prime-risk category to be a credit score of 680 or above, using Experian’s Scorex Plus scale. The average credit score for used-vehicle loans was 662, down from 671 a year earlier.
The average interest rate on new-vehicle loans was about 4.6 percent, down from 4.8 percent a year earlier. The average rate for used-vehicle loans increased a fraction of a percentage point to about 9 percent, but Experian Automotive said rates were down for most used-vehicle loans. “Deep subprime” customers, with credit scores below 550, were the exception.
Subprime loans accounted for about 44 percent of the auto loans made in the second quarter, up from about 41 percent a year ago.
“Because the overall lending environment has improved, lenders are making loans available to a wider range of customers. This is good for manufacturers and dealers, as it allows them to sell more vehicles,” Zabritski said. “However, the lower loan-to-value ratios show that lenders are not willing to throw caution to the winds.”
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