Car loans easier to grab as sales increase, riskier buyers pay up
More private investment and relatively stable delinquency rates means it's getting easier to find a good car loan.
During the third quarter of 2012, the latest information available from the major credit agencies, car buyers signed up for 16 percent more loans than during the same time in 2011, according to TransUnion. More subprime borrowers -- those with below-average credit scores who pose a higher risk of defaulting -- are entering the market after loans dried up after the 2009 recession. These buyers represented 32 percent of all car loans, up from 28 percent in 2010.
Still, buyers who are late on payments for 60 days are down considerably from 2009, from 0.94 percent of all borrowers to 0.74 percent in the fourth quarter of 2012, according to Experian. While the last few months of 2012 showed a seasonal uptick in late payments -- a typical response as buyers pay off other year-end bills and start their holiday shopping -- buyers are taking on more debt per loan thanks in part to a stronger car market.
TransUnion said the average loan debt per borrower had been increasing for seven straight quarters to $13,747 by the end of 2012, with drivers in Texas, Wyoming and Louisiana posting the highest debts, at more than $15,000.
According to Manheim, a fleet auction company, more than $90 billion auto-related securities were sold last year, up from $68 billion in 2011 and $36 billion in 2008. That's critical cash, typically from large companies and mutual funds, that has fueled the lending industry's rebound in the car market. As a result, more people have been able to find car loans that might have been denied just a few years ago.
But while credit agencies say repossessions are likely to grow in the next few years, due to a greater number of subprime borrowers, overall the market has remained stable.
"Households have increased the priority that they associate with making their monthly car payments, and as such, delinquencies and default rates will be lower than they otherwise would be for any given set of economic circumstances," Manheim said in its annual used-car report.
New-car sales reached a five-year high in 2012 and are projected to grow an additional million to 15.4 million vehicles in 2013. Used-car sales, at 40.5 million vehicles last year, also rose considerably.
[Source: TransUnion, Experian, Manheim, Detroit News]
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