Auto loan, lease balances top $1 trillion

U.S. auto loan and lease balances, fueled by a robust market for new vehicles, have surpassed $1 trillion for the first time, according to the latest Equifax National Consumer Credit Trends Report.

Total outstanding U.S. auto loans and leases reached $1.021 trillion in June, a year-over-year gain of 10.5 percent. The number of outstanding accounts also grew from the same time a year ago to 73.7 million, an increase of 8 percent, Equifax said this week.

U.S. sales of new light vehicles have risen 4.5 percent this year through July and are on pace to top 17 million or more for the year. Sales are on track to grow for the sixth consecutive year and some economists and analysts believe U.S. deliveries could top the record 17.4 million, set in 2000, during the current expansion.

“More and more people believe it’s a good time to purchase. And, in general, cars have gotten more expensive, so people may be borrowing more than they have in the past,” Dennis Carlson, deputy chief economist at Equifax, told Automotive News.

And as loan terms continue to grow (the average term for a new-car loan is now more than 5½ years), “many consumers have a monthly number that they feel they can comfortably afford,” he said. “This allows the dealers to be a little bit more accommodating” in helping consumers find a vehicle to fit into that monthly payment plan, he said.

Subprime loans rise

Through April this year, auto loan originations rose 5.8 percent, compared with the year-earlier period, to 9.02 million. Loan balances were $182.9 billion, an 8 percent rise. Originations and balances were the highest they’ve been during the four-month period since Equifax began tracking the numbers in 2005, the company said in a statement Aug. 10.

Loans issued to consumers with credit scores below 620, which Equifax considers subprime, rose 9.6 percent through April to 2.12 million. However, the number of loans in all credit segments is growing, the company said. The share of subprime loans through April, 23.5 percent, is up only slightly from 22.7 percent through the first four months of 2014.

“As the labor market continues to improve, I think people who maybe found themselves with financial scars from the recession [have] a general feeling that things are getting better,” Carlson said.

The rise in auto loans may also be a matter of necessity, since the average age of a car on the road is now 11 and a half years, he added.

“People feel more comfortable and able to pay the loans,” Carlson said. And with technology, such as income verification tools, “lenders have more comfort that they’re making right loans for right people.”

Finance companies lead leasing

Auto loan balances through June increased 10 percent for both banks and finance companies. In the leasing segment, however, finance companies -- defined as any non-bank or non-credit union auto lender -- outpaced banks, with portfolios more than seven times the size of bank lease portfolios, the statement said.

“The captive auto finance companies are supporting sales for the manufacturers, and dealers continue to work with independent auto finance companies to find the right loans for their customers, particularly in the non-prime space,” Carlson said in the statement. “This combination has led to finance companies growing slightly faster than the commercial bank segment.”

Credit unions may be quickening their own pace soon. TransUnion reported this week that in a survey of 90 credit union executives, nearly half of the respondents ranked auto loans as the No.1 area for credit union growth opportunity. More than 80 percent of respondents ranked auto loans in the top three areas for growth opportunity.

You can reach Hannah Lutz at hlutz@crain.com

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