Americans are leasing more new vehicles than ever and borrowing more than ever when they buy, says Experian Automotive in its quarterly “State of Automotive Financing” report.
A third of new car and truck transactions in the last three months of 2015 were leases, up from 29.9% a year earlier and more than 10 percentage points higher than the level in the fourth quarter of 2011.
The average new auto loan also reached a record $29,551, up 4% from a year earlier.
This data comes one week after Fitch Ratings reported that delinquencies of securities backed by subprime auto loans reached their highest level since September 2009. Nevertheless, automakers are on track to beat last year’s U.S. record of 17.5 million vehicles sold.
“People shop for vehicles largely based on vehicle price, and right now average dollar amounts for new vehicle loans are soaring,” said Melinda Zabritski, Experian senior director of automotive finance. “In order to stay within their budget goals, we have seen that more consumers are turning to leasing and used vehicles as alternatives.”
Once again, the average length of new-car loans grew. It’s now 67 months, up one month from the fourth quarter of 2014. The average used car loan was for 63 months, up from 62 a year earlier. Most used car loans are for less money.
Among riskier subprime and deep subprime borrowers, the average new-car loan is for 72 months, with an average interest rate of 10%, according to Experian. That compares with an average of 4.63% for all new-car loans.
In the fourth quarter of 2015, 29% of new auto loans were for even longer terms, between 73 and 84 months, up from 9.6% in 2010.
The problem with longer loans is that the borrower soon owes more than the vehicle is worth as its value depreciates faster than the payments reduce the loan’s balance.
Unlike the easy credit that triggered the housing market collapse, in which many mortgages carried adjustable interest rates, or only required interest payments initially, most auto loans are made at a fixed interest rate, but the lower a person’s credit score, the higher the interest rate on the loan. So the loss of a job or an unexpected medical bill could easily cause a missed car payment for a month or two.
The total outstanding balance of all new and used vehicle loans was $987 billion at the end of last year, up 11% from 2014.
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