Equifax: Auto Lending At Record Highs, Delinquencies At Record Lows


Six years after the dark days of the Great Recession, automotive lending is back on the rise, while delinquencies on those loans remain grounded.
Ward’s Auto reports the total balance of the loans after the first half of 2014, according to a report by credit reporting agency Equifax, is a record $902.2 billion. Equifax economist Dennis Carlson adds that auto lending accounts for more than half of all new non-mortgage lending during the first four months of the year, with delinquencies making up less than 1 percent of the total balance:
Lenders are responding to record low delinquencies by offering great rates and terms, while consumers are responding to the improving economic conditions by making the decision to purchase newer vehicles.
For those first months of 2014, the total balance of new auto loans is $163.5 billion, with 8.1 million loans out and about. Further, 2.6 million of those loans went to subprime consumers, while the total balance of the loans is $46.2 billion, making up 28.2 percent of the overall new loan balance.
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Coming from both as a used car manager and someone who has had a terrible subprime car loan, don't take loans on cars you can't afford. Always think of your exit strategy from the vehicle. The sooner you're right side up on the car, the better - you can ditch it for something else, or sell it and get out of the monthly payments. Subprime loans are billed as a way to rebuild your credit, but being upside-down on a deteriorating asset, which also is locking up money to pay off other bills and clean up your credit rating, isn't a path to having better credit. I'm not saying only pay in cash every time. But keep your loan terms short. If you can't pay for a used car in two years, or a new car in four, then you can't afford the car.
One of my clients' lines of business is automotive bankruptcies, representing the finance arms. Of their bankruptcy and foreclosure practice, the autobk side is the slowest by a factor of a million (exaggerated). People will go into foreclosure before they default on an auto loan: no transport = no job. So long as people can float the payments there's nothing to worry about here. As I've said before: as with anything in economics, the trend is your friend...until it's not.
1) I can buy a new car with a warranty for $25k and 0% interest for up to 8 years. If I want I can always pay off the loan early. But I will probably drive the car for 7 or 8 years and then depending on its reliability and condition have the choice to keep it, give it to one of my kids or sell it. It will be a 7 or 8 year old one owner car with about 200k. 2) I can buy a good used car for about $15k with an interest rate of around 6%. After 4 years I will have a car that is 6 or 7 years old and has probably about 150 - 170k. The cost including depreciation, interest payments and maintenance favours the used car. However the new car will cost me about $90 less per month to carry. So what is the better choice?
Last new car we purchased was a 64 Bug for $1500 picked up in Paris. We did not buy new cars. Only used and cash. Our best value was an 89 Mazda 626, low mileage and salvage repaired. On retirement wife insisted on a senior citizen hauler. 05 Sable premium 25k miles and out the door for $11.5k. Unnecessary car but life is compromises.