UPDATED: 11/18/15 12:22 pm ET - adds details
Auto loan balances reached $1.008 trillion in the third quarter, an increase of $101 billion since the end of the same quarter last year, according to TransUnion.
The credit reporting agency said auto loans delinquent 60 days or more remained flat in the third quarter vs. the year-earlier period at 1.2 percent. Another 5 million consumers opened an auto account since the third quarter of last year, bringing the number of consumers with accounts to about 75 million.
Jason Laky, senior vice president and automotive business leader for Chicago-based TransUnion, said that in addition to the strong auto market, there is increased confidence in the strength of the U.S. economy from consumers and auto lenders. He cited a strong October U.S. jobs report in which the unemployment rate hit a 7.5-year low and average hourly earnings rose 9 cents.
“This reflects the continued growth of not just the auto industry and auto loans but of the U.S. economy as a whole,” Laky told Automotive News.
The auto industry is on pace to set an annual U.S. sales record in 2015 after October’s annualized sales rate came in at 18.23 million. According to General Motors, the six-month rolling average of the SAAR sits at 17.8 million, which would top the all-time high of 17.4 million light vehicles sold in 2000.
The robust auto sales are being driven in large part by high demand for light trucks. U.S. sales of those vehicles topped 8.1 million this year through October, up 12 percent from the first 10 months of last year, according to the Automotive News Data Center. Total U.S. light vehicle sales were 14,508,443 through 10 months this year.
Growth of average balances slows
Laky said in a statement that although consumers are taking on more auto debt, he sees “no cause for concern as delinquencies remain steady” and the growth rate of loan balances slows.
TransUnion said the average loan balance across all auto loan accounts was $14,515 in the third quarter, a 2.7 percent rise from the same period in 2014, the slowest growth rate since the fourth quarter of 2011. The average auto loan balance for consumers in the subprime risk category rose 4.2 percent to $13,890 in the third quarter, the slowest growth rate since early 2012.
TransUnion reported average auto loan balances one quarter in arrears. In the second quarter of 2015, the average balance on a new auto loan jumped to $20,016, an increase of 2.9 percent, or $567, from the second quarter of 2014. New subprime auto loan balances rose 3.7 percent to $17,357 in the second quarter, the slowest pace since 2012.
Even as balances rise, consumers are taking charge of their loans, Laky said. “More consumers have access to auto loans, yet delinquencies remain low as they continue to responsibly manage their payments,” he said in the statement.
Subprime auto loan balances account for $154 billion, or about 15 percent, of the $1 trillion in total loans outstanding. Consumers in the “prime or better risk” tiers represent $670 billion of the total balance. TransUnion defines subprime loans as those to consumers with credit scores below 601 and “prime or better risk” loans as those to consumers with scores higher than 661.
Originations hit all-time high
New auto loan originations, which TransUnion also reported one quarter in arrears, reached 7.3 million in the second quarter of 2015, exceeding 7 million for the first time, TransUnion said.
Young people are financing at a “healthy pace,” TransUnion said. The number of consumers under age 30 with an auto loan or lease grew 9.6 percent in the third quarter from a year earlier to 11.7 million, according to TransUnion.
“It’s a sign that even in this sharing economy, young people see the importance of having a car,” Laky said.
Meanwhile, older consumers also are playing a part in healthy loan growth, Laky said. Nearly 16 million consumers age 60 and older have open auto loans or leases as of the third quarter, an increase of 500,000 people from the second quarter of this year.
Laky said older drivers are ideal customers for lenders because they can feel confident loans will be repaid. Consumers 60 and older had the lowest delinquency rate among any age group at 0.56 percent in the third quarter, according to TransUnion.
‘No score’ segment improves
Meanwhile, Equifax said today that auto lenders are making sure that customers with no credit score have the financial ability to pay their auto loans by using alternative data and by verifying income and job tenure using employment data services rather than relying just on consumer-provided pay stubs.
The credit bureau said auto originations to consumers in the “no score” segment of the credit spectrum are performing better than they have in the past. The median write-off rates for “no score” originations from 2012-14 are 22.8 percent lower than they were from 2007-09, Equifax said.
“Alternative data, verified income and other new tools to evaluate this very fast growing ‘no-score’ segment have enabled rich margins and good loan performance,” Lou Loquasto, Equifax’s auto finance leader, said in a statement.
Earlier this month, Experian Automotive reported auto loan balances outstanding reached $968 billion in the third quarter, a high since Experian started tracking the numbers in 2006 and up 11 percent from the third quarter of last year. Sixty-day delinquencies dipped slightly in the 2015 quarter to 0.73 percent, from 0.74 percent a year earlier. Data differs among the credit bureaus in part because of different analysis mechanisms and varied access to lender data, the companies say.
Hannah Lutz contributed to this report.