The number of loan and lease accounts is growing faster at auto finance companies than it is at banks, helped by finance companies’ lower interest rates and higher subprime lending, Equifax says.
Through August, combined loan and lease accounts at finance companies, defined as automaker captive finance companies and independent finance companies, jumped 9.7 percent to 33.9 million compared with the first eight months of 2014. Accounts at banks, including credit unions, grew 5.7 percent to 33 million.
“Captives are making pushes to use terms and low interest rates to capture share away from competitors,” said Dennis Carlson, deputy chief economist at Equifax.
Dealerships are “going to see better rates because captives and independent auto finance companies are trying to capture the sale. A bank is probably not going to have the lowest rates,” he added.
A rise in subprime lending also drove finance companies’ increase, he said. Through June this year, 3.2 million subprime loans had been originated, a 9.8 percent increase over the first six months of 2014, Equifax data show.
“A lot of independent finance companies specialize in subprime, but many banks are hesitant” to issue high-risk loans, Carlson said. In general, three out of four subprime consumers borrow from an auto finance company, he said.
Overall, the number of auto loan and lease accounts increased 8.7 percent through August, reaching 75 million accounts. Outstanding auto loan and lease balances rose 11.1 percent to $1.05 trillion, according to Equifax data.
Comparable balance growth
In terms of year-over-year increases, the growth in auto loan and lease balances at auto finance companies and banks is comparable, Carlson said.
At auto finance companies, combined auto loan and lease balance increased 11.3 percent to $482.1 billion. At banks, balance climbed 10.2 percent to $494.5 billion.
High leasing levels could be another reason for the uptick in finance companies’ accounts, Carlson said.
Finance companies’ lease portfolios are seven times greater than the size of bank lease portfolios, according to Equifax. Through August, banks had about 1 million lease accounts while finance companies had about 7 million.
Carlson expects that leasing will continue to climb, which would “skew accounts toward finance companies, particularly captives,” he said.
“It explains why we’re not seeing a huge difference in balance” between banks and auto finance companies, he said. “A lease balance would be lower than a loan balance,” he said.