Auto Loans Top $1T; Sub-prime Loans Grow 10 Percent Over 2014
Credit-reporting agency Equifax says that as of June 2015 more than $1 trillion has been loaned or leased in the United States. The total dollar amount is 10.5 percent higher than last year.
The average loan amount is $20,800, which is a 3.65 percent increase over last year, and the average sub-prime loan is $18,200. Sub-prime loans comprised 23.5 percent of newly originated auto loans.
More than 9 million new loans were made up to April 2015, which is a 5.8-percent increase over last year. Overall, more than 73.7 million cars are financed through loans in the U.S.
Now that the average car loan is six years or longer, buyers may be able to afford taking longer, more expensive loans, and rising consumer confidence may spur more people into buying.
“Strong sales numbers in both the new-car and used-car markets, coupled with the availability of quality financing for consumers are a few of the main reasons the industry has reached the one trillion dollar mark,” Dennis Carlson, Deputy Chief Economist at Equinox, said in a statement. “It clearly reflects that the improving economy has provided the impetus for consumers to replace their aging vehicles and begin to satisfy their pent-up auto demand.”
For context, the current student debt burden in the U.S. is around $1.2 trillion, which some have said is an “ epidemic,” (although college debt usually doesn’t have any collateral). And if the sub-prime figure raises an alarm, David Ruggles has a fairly cogent argument why that may not be a bad thing.
More by Aaron Cole
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I believe the the post references sub prime loans. I welcome anyone to name the bank purchasing 7 year (84 month) loans for sub prime borrowers. It may help for us to define sub prime a bit though. Is it the guy with a solid job and one collection from three years ago relating to a medical bill? That guys credit is considered sub prime. Or, are we talking about the cat who pays late every month, like clockwork and their personal finances could be best described as a grease fire? Person number one, 84 months no problem in the right unit. Person #2, no dice. 60 months, maybe 66. But the lender will want to be 90% of book OTD, and if the score is sub 540 want a nice acquisition fee of 10% or so. The banks buying sub prime loans HAVE learned lessons from 08' and are buying accordingly. What the general public does not see is how the loans are structured, the fees charged to the dealer to buy the loan. Will some go bad? Yup! Will the lender lose any money? Sure, very little though. The underlying asset (the car) almost always has some value, few cases of truly worthless cars repossessed. The real scary loans are the ones to the boomer mid level manager who inks up on a 1k stroke for his LX470 on 84 months. Even at a low rate, what happens to that loan when said cat is 'downsized' via thinly veiled age discrimination? Those are the loans that will explode.
You should see all the luxury cars: used Mercedes, BMW,Audi, etc here in Queens NY just waiting for some drug dealer with a lot of cash to walk in and drive off the lot. The economic downturn has been so hard on the drug dealers that many have been forced to trade their used BMW M6 in for Hyundai Sonatas. (that joke did target someone specific but he doesn't read this website )
"Oh, I can do $650/mo...but can we talk about the $800 down?"
And, I read somewhere we're on the way to the best car sales year in 15 years.......