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Auto Finance Keys Q1 Sales Uptick

July 2012, F&I and Showroom - Feature

by Melinda Zabritski

Based on first-quarter data, the auto finance marketplace is the healthiest it has been since the market bottomed out in 2008. Credit scores dropped to near pre-recession levels and the total dollar volume of at-risk loans fell to a six-year low.

Data from the opening quarter of 2012 also shows that more people are financing their vehicle purchases, with all lending segments realizing increases in loan balances. And as has been the case in recent quarters, drops in delinquencies and at-risk loan amounts fueled a more welcoming auto finance market.

Consumers who purchased a vehicle in the first quarter were able to finance more expensive vehicles at lower interest rates and longer terms. The drop in credit scores also meant more car buyers with damaged credit were able to obtain financing, which will be key as the industry continues to chase those 16 and 17 million-unit years.

Vehicle Loan Rate: How have rates changed?
Vehicle Loan Rate: How have rates changed?

Loan Balances on the Rise

Dealers and automakers weren’t the only ones welcoming the 13 percent rise in auto sales during the first quarter. Auto finance sources, which have seen loan balances fall during those lean recessionary years, realized a $26.8 billion increase in outstanding loan balances. Nearly half of that growth was driven by banks, with outstanding balances growing by approximately $13 billion. Captives realized a $7 billion increase, while finance companies and credit unions saw loan balances increase by $4 billion and $2 billion, respectively.

Consumers Driving Lender Confidence

One of the most important measures of the industry’s health is the rate at which consumers are paying back their loans. As in prior quarters, loan portfolios continue to demonstrate a significant improvement in repayment patterns and in the percentage of dollars at risk.

On-time payments drove down the 60-day delinquency rate from 0.65 percent in the year-ago period to 0.57 percent in the first quarter, while the 30-day delinquency rate fell from 2.52 to 2.33 percent. The drops helped push the percentage of total dollars at risk to its lowest level since Experian Automotive began publishing delinquencies in first quarter 2006.

In the opening quarter, 30-day delinquencies totaled $12.1 billion, or 1.8 percent of the total loan portfolio, while 60-day delinquencies totaled $2.6 billion, or 0.4 percent of all loans.

Risk Distribution of New Loans: How has financing on vehicles changed?
Risk Distribution of New Loans: How has financing on vehicles changed?

Lower Rates, Longer Terms

Finance sources rewarded consumers for their improved repayment pattern with more favorable terms and interest rates. They also provided car buyers with access to more expensive cars at lower monthly payments.

Interest rates for new-vehicle loans came in at 4.56 percent in the first quarter, down from 4.83 percent in the year-ago period. For used-vehicle loans, interest rates fell from 9.08 percent in the year-ago quarter to 9.02 percent in the first quarter.

Loan terms for new-vehicle loans increased by a month from a year ago to 64 months, while terms on used-vehicle loans inched up from 58 months to 59 months.

Consumers responded by taking out slightly larger loans during the quarter, with the average amount financed on new vehicles rising by $589 to $25,995. For used vehicles, the average amount financed increased by $411, bringing the average total to $17,050.

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