Aug. 21--Car buyers are borrowing at a record pace to purchase new vehicles, as the total amount of outstanding auto loan balances rose 12% in the second quarter, according to a new report.
The data reflect how lenders are easing credit requirements and consumers are taking greater risks over longer periods, based on research by Experian Automotive. The credit-monitoring service reported that auto loan balances rose 12% to $839 billion in the second quarter, compared with the same period a year ago.
In another recent report, Experian found the average term for a car loan is 66 months. For buyers with weaker credit histories, the average length is 71 months.
The percentage of car buyers who are more than 60 days late on their loan payments -- a measurement known as the delinquency rate -- spiked to 0.62%, a 70% increase from a year earlier.
Experian said the numbers aren't particularly concerning but nonetheless illustrate that the market's ability to absorb more leverage in exchange for shiny new vehicles might be ebbing.
"The rosy glow of perfect payment performance in the automotive space is beginning to tarnish," Melinda Zabritski, Experian senior director of automotive finance, said in a statement. "We're starting to see a slight uptick in the number of consumers struggling to make their automotive payments on time; however, we have to keep in mind that these percentages are still extremely low."
Average transaction prices of new vehicles in July rose by $550 compared with the year earlier, according to Citi Investment Research. That largely reflects the above-average strength in sales of luxury cars, well-equipped pickups and large SUVs. But with easier credit, consumers are willing to finance the vehicles they want.
"As one dealer recently told us, 'You have to be a loser to not get 0% for 72 months on your car loan,' " Morgan Stanley analyst Adam Jonas said in a recent research note.
Jonas concluded that the auto industry might be leaning too heavily on incentives to juice the new-car sales rate, though he projected the annual sales rate may still rise to 18 million units in the coming quarters.
Other findings from Experian's recent report:
-- All lender types experienced growth in year-over-year quarterly loan volume, with banks up by $31 billion, credit unions up by $25 billion, finance companies up by $24 billion and captive finance companies up by $9 billion.
-- Finance companies reported the percentage of vehicles they had to repossess jumped to 2.75% in the second quarter from 1.13% in the year earlier period.
Contact Nathan Bomey: 313-223-4743 or email@example.com. Follow him on Twitter @NathanBomey.
(c)2014 the Detroit Free Press
Visit the Detroit Free Press at www.freep.com
Distributed by MCT Information Services