Auto Loan Market Continues to Improve

Experian Automotive, a division of Experian (one of the three major credit bureaus), released their fourth quarter 2011 automotive credit analysis. The overall dollar volume of loans at risk dropped to $18.5 billion, which was a $1.862 billion drop from fourth quarter 2010.  Total auto loan volume increased by $23.9 billion in fourth quarter 2011 to $658 billion.  There was continued improvement in this market – interest rates were the lowest since 2008; there was an increase in lending to consumers with lower scores; longer loan terms were offered; repossession rates dropped; and average charge-off rates dropped.

Interest rates, scores and loan amounts
Average interest rates for new vehicle loans were 4.52 percent in fourth quarter 2011, compared to 4.84 percent in fourth quarter 2010. Average interest rates for used vehicle loans were 8.68 percent in fourth quarter 2011, compared to 8.71 percent fourth quarter 2010.

The average credit score for new vehicle loans was 761 in the fourth quarter 2011, which was six points lower than 767 a year earlier. The average credit score for used vehicle loans was 670 in fourth quarter 2011, which was also nine points lower than 679 a year earlier. The credit score used was Experian’s Plus Score.

New vehicle loans to nonprime, subprime and deep subprime customers increased by 13.8 percent from the previous year.

Loans of 73 to 84 months (6 to 7 years) comprised 14.1 percent of all new vehicle loans, which was an increase of 47.1 percent from the same period last year. Loans of 73 to 84 months represented 9.04 percent of all used vehicle loans, which was an increase of 41.1 percent from last year.

Loan delinquencies, repos and charge-offs

The 30-day delinquency rate (30 days past due) was 2.79 percent in fourth quarter 2011, compared to 2.98 in fourth quarter 2010 or a 6.57 percent decrease. The 60-day delinquency (60 days past due) rate was .72 percent in fourth quarter 2011, compared to .79 percent in fourth quarter 2010 or a 9.51 percent decrease.

The overall repossession rate was 0.67 percent in fourth quarter 2011, and 0.714 a year earlier or a 6.2 percent decrease. The captive finance companies (such as American Honda Credit) had the largest decrease in repossessions, which was 0.43 percent in fourth quarter 2011 and 0.60 percent a year earlier or an 18.9 percent decrease. Commercial banks’ repossession rate in the fourth quarter 2011 was 0.31 percent, which was a 15.2 percent decrease. Credit Unions’ rate was 0.18 percent or a 5.5 percent decrease. Finance companies had the highest repossession rate which was 2.47 percent, but this was a 4.7 percent decrease from 2010.

Average charge-off amounts for all auto lenders also declined.  In fourth quarter 2011, the average charge-off amount dropped $779 to $6,815, which was almost half the level Experian reported two years earlier. At the end of 2010, the average charge-off amount was $10,315.

Experian broke down the average charge-off amount by lender category:

Commercial banks’ average charge-off was down $788 to $6,141.
Captive finance companies’ average charge-off was down $695 to $6,916.
Credit unions’ average charge-off was down $561 to $6,442.
Other finance companies’ average charge-off was down $761 to $7,126.

The market has loosened their credit standards, which is a good sign for the economy. It is a good time to buy, if you are in the market.  I don’t advise financing a car for up to 7 years, which is too long to pay for a car.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Auto Loans, Credit Monitoring, Credit Report, Credit Score, Debt, Getting Credit, Money & Identity

This post was written by John Ulzheimer