Auto Loan Balances Reach Record High in Q4 2014

Recently released data from Experian Automotive shows that the total loan balance for new and used automobile loans reached an all-time high of $866 billion in the December ending quarter of 2014.

This news comes on the heels of a huge increase in new vehicle sales, and ongoing trends that favor products with a longer life of loan, thus encouraging consumers to spend for more expensive vehicles. Separate data from auto shopping portal Edmunds shows that new car loans have an average life of 67.2 months, and an average interest rate of 4.5 percent, while the average price of new cars purchased was $32,386 for the previous calendar year. That is several thousand dollars more expensive than the average price of a midsize sedan, typically one of the most popular types of vehicles favored by consumers.

Auto Loan

Although, there has been some concern about high-risk consumers unwantedly improving automobile sales as a result of less stringent loan requirements, Experian Automotive said that credit-worthy consumers still took up the same share in the car market in 2014. The fact that a lot of sub-prime and deep sub-prime borrowers took out auto loans in 2014, according to the credit reporting agency, should not be any reason for concern.

“Whenever there is an uptick in the number of loans to sub-prime and deep sub-prime customers, there is the potential for a ‘sky is falling’ type of reaction,” opined Experian director of automotive finance Melinda Zabritski. “The reality is we are looking at a remarkably stable automotive-loan market, in part because consumers are continuing to stay on top of their payments.”
Zabritski’s words have statistical evidence to back them up. Borrowers in the sub-prime levels (FICO credit score of 501 to 600) and deep sub-prime levels (FICO score below 500) took up 20.3 percent of all auto loan borrowers in the December 2014 quarter, or slightly less than the 20.6 percent share recorded in the December 2013 quarter.

Conversely, super-prime borrowers, or those with FICO scores of 781 to 850, took up 20 percent of all auto loans in quarter four 2014, making this the only credit score-based category to enjoy an uptick in market share. This suggests that the auto loan market still attracts a good percentage of credit-worthy consumers, including those with pristine credit ratings.

Additionally, Experian reported that the percentage of consumers who are delinquent, or 60 days past due or more, on their auto loans continued to decline, with even Washington, D.C. recording a rather low delinquency rate of 1.47 percent. The nation’s capital was followed by Mississippi (1.27 percent), Louisiana (1.15 percent), Alabama (1.03 percent), and South Carolina (0.99 percent) among the top five states or districts with the highest percentage of delinquent auto loan borrowers.

North Dakota had the lowest rate of delinquency at 0.33 percent, and was followed by Minnesota (0.39 percent), Oregon (0.39 percent), and Washington state (0.40 percent). Alaska and New Hampshire tied for the fifth-lowest delinquency rate in the U.S., coming in at 0.44 percent.