Auto loan values rise along with the length of terms, leasing

The average loan amounts for new and used vehicles rose in the fourth quarter, but consumers kept monthly payments low with long loan terms and leasing, Experian said today in its fourth quarter State of the Automotive Finance Market report. Delinquencies also rose, but lenders are tightening their standards, Experian said.

The average loan amount for a new vehicle reached a record $30,621 in the fourth quarter, a 3.6 percent increase year over year. For used vehicles, the average loan grew 2.5 percent to $19,329.

The $11,292 gap between the average loan amount on a new and used vehicle is the widest in Experian’s records, Melinda Zabritski, Experian’s senior director of automotive finance, said in a statement on Thursday.

“This upward trend is causing many consumers to find alternative methods like extending loan terms, getting a short-term lease or opting for a used vehicle to get what they want while staying within their monthly budget,” she said.

To keep monthly payments low, more borrowers are taking out loans of 73 to 84 months. The 73-to-84-month group made up 32.1 percent of new-vehicle loan share in the quarter, compared with 29 percent a year earlier. On the used side, loans lasting 73 to 84 months made up 18 percent of share, up from 16 percent a year earlier.

“With the average loan amount for new and used vehicles hitting all-time highs, we are seeing the need for affordability drive consumer purchasing behavior,” Zabritski said.

Lease penetration inched up slightly in the quarter to 28.94 percent, compared with 28.87 percent a year earlier. The average monthly payment for a new leased vehicle is $414, $92 less than the average monthly payment on a new vehicle loan.

Although year-over-year auto loan balance growth continues to slow, it reached a record-high $1.072 trillion in the fourth quarter, an 8.6 percent rise from the year-earlier period.

Delinquencies rise, credit improves

Thirty-day delinquencies rose slightly in the fourth quarter to 2.44 percent, compared with 2.42 percent a year earlier. Sixty-day delinquencies reached 0.78 percent, from 0.71 percent a year earlier.

But lenders are reacting to rising delinquencies, Experian’s data show.

“In response to these increases in delinquencies, lenders continue to adjust their lending strategies by shifting more loans toward customers with better credit,” the statement said.

The average credit score improved two points to 714 on new-vehicle loan and lease originations and five points to 654 on used-vehicle loan originations.

“Delinquencies are always an important indicator of the overall health of the automotive lending market, but it’s equally important to watch how lenders react when they see a rise,” Zabritski said. “The shift to a higher percentage of prime and subprime customers is a natural consequence of the slight growth in delinquencies. Overall, we are still looking at a very healthy lending market.”

Lending to deep-subprime and subprime customers fell about 1 percentage point to 20.82 percent of the total lending market in the fourth quarter. Loans to prime and super prime customers, however, increased about 1.5 points to 59.41 percent of the overall finance market.

Used-vehicle financing continued to become more prime in the fourth quarter, Experian said. Loans to borrowers with superprime credit scores grew to 41.85 percent of the used-vehicle financing market, a 5.4 percent increase over the 2015 period.