Car Loans Are Easier To Find: Should We Be Worried?

May 30, 2012
Auto loan

Auto loan

A big part of the auto industry's troubles during the Great Recession were tied to the credit crunch. After the banks failed, it became much harder for consumers to secure credit, and without credit, many shoppers found themselves unable to finance new or used cars.

However, a report from Experian Automotive says that restrictions among lenders are slowly easing, and that folks with less-than-dazzling credit scores are qualifying for loans in greater numbers. That's great news for people who need new rides, but should we be worried about another credit collapse looming on the horizon?

The details

Experian's report -- rivetingly entitled "State of the Automotive Finance Market: First Quarter 2012" -- contains a lot of interesting information for economists and statistics nerds. For the rest of you, here are a handful of the report's highlights. We'll start with the good:

  • Currently, a whopping 39.7% of America's car loans are held by super prime borrowers -- folks with Vantage scores 801 or higher. That's a slight uptick from the first quarter of 2011, when super prime shoppers held 39.4% of all loans.
  • Borrowers classified as "deep subprime" (i.e. those with Vantage scores below 600) account for just 10.7% of auto loans, which is slightly below last year's figure of 11.1%.
  • Loan rates have dipped. On new cars, shoppers in Q1 secured loans averaging 4.56%, which was down from 4.83% in 2011. For used-car shoppers, the figure was 9.02%, down slightly from last year's 9.08%.
  • Those low loan rates have helped keep average monthly payments flat. New-car owners now pay notes averaging $461 per month, which is up just $1 from last year. Used-car borrowers pay about $346, up $3.
  • Delinquency rates are at historic lows. The number of borrowers with balances 30 past due is down an average of 7.58%. That's thanks in large part to improving employment figures. 
  • Repossessions are down, too, with 37.1% fewer reported during the first quarter of 2012 than during the same period in 2011. 

However, there are a few bits of worrying news:

  • Our total debt in car loans is far greater than last year. During the first quarter of 2011, Americans held auto loans totaling $637 billion. This year, the figure is $663 billion, up $26 billion. (Though that growth was probably inevitable, since car sales are soaring.)
  • The total we owe has risen, too. The average sum financed on a new car is now $25,995, $589 higher than last year. On used cars, the figure sits at $17,050, which is $411 higher than Q1 of 2011.
  • The average credit score of borrowers has dipped to 760, from a high of 776 in Q1 of 2010. In a way, that's understandable: as the economy recovers, we've been borrowing more, and as we've been borrowing more, our credit scores have slipped. Still, it's worth noting.
  • The average length of auto loans has increased a full month over the past year. New-car loans now average 64 months, while used-car loans average 59 months. That's because the biggest growth in financing has been in 61-72 month loans (up 2.6%) and in 73-84 month loans (up a staggering 15.4%). 

Should we be worried?

From where we sit, this seems like steady, manageable growth. It's impressive, but it doesn't blow us out of the water -- which is often the sign of a bubble ready to burst.

Then again, we're just armchair economists. We'd love to hear some opinions from bona fide bean-counters. Send 'em by email, or leave a note in the comments section below.

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