Auto finance outlook is good for 2014, report says

The average interest rate for new-vehicle loans in the fourth quarter of 2013 was 4.37 percent, a slight increase from 4.36 percent a year earlier.

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The outlook for auto finance this year is “mildly less positive” relative to extraordinarily favorable conditions, according to analysts for NADA Used Car Guide.

However, lenders remain eager to lend, and consumers are comfortable with taking on additional debt, the analysts said in a report released Tuesday.

“Considering the strength of today’s credit environment relative to years past, we believe conditions will begin to become slightly less favorable toward the latter half of the year, as the market transitions from a uniquely positive period to one more in line with historic norms,” the report said.

Low interest rates are an important foundation underlying today’s favorable auto finance environment.

The report quoted Federal Reserve statistics that showed interest rates on new-vehicle loans were at their lowest level in at least 40 years in 2013. At the same time, household debt as a percent of income fell to the lowest levels since the early 1990s.

“So not only were interest rates keeping the cost of borrowing very low, the anxiety of taking on more debt was greatly reduced,” the report said.

The “prevailing sentiment” is for interest rates to stay relatively flat for higher credit tiers, the report said, but interest rates could begin to inch up for borrowers with lower credit scores.

According to Experian Automotive, the average interest rate for new-vehicle loans in the fourth quarter of 2013 was 4.37 percent, a barely measurable increase from 4.36 percent a year earlier. The average rate for used-vehicle loans was 8.71 percent -- an increase of less than 0.25 percent vs. 8.48 percent in the fourth quarter of 2012, Experian Automotive said.

The NADA Used Car Guide report said that given a more competitive sales and financing environment, it is “reasonable to assume” finance incentives would rise in 2014.

You can reach Jim Henry at autonews@crain.com.

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