Americans Loving Their Leases, Not so Much Their Loans
Good times have clearly arrived, because Americans are flinging money at cars like it’s going out of style.
Leasing has never been more popular for American car buyers, reports the Detroit Free Press, and the size of their auto loans have also reached record territory.
According to industry data tabulator Experian Automotive, 33.6 percent of new car and truck purchases in the fourth quarter of 2015 were leases, with average vehicle loans hitting $29,551. The findings aren’t surprising when you consider the combination of growing economy, low interest rates and cheap gas prices spurred record vehicle sales last year.
“In order to stay within their budget goals we have seen that more consumers are turning to leasing and used vehicles as alternatives,” explained Melinda Zabritski, Experian senior director of automotive finance.
However, more buyers are also discovering their vehicle desires aren’t aligned with the reality of their bank balance.
Fitch Ratings noted last month that a growing number of subprime auto loans are becoming delinquent by 60 days or more, a condition fueled in part by easy-to-access credit and lower used car prices.
In February, the delinquency rate for subprime auto loans stood at 4.98 percent, passing the 4.87 percent recorded in September 2009. The percentage of loans seen as likely to default grew as well — 8.72 percent in January — and is expected to hit 10 percent by the end of this year.
More than one-in-five Americans taking out a car loan have a low or very low credit rating, resulting in a higher fixed interest rate on the loan. Couple that with the 72 month loan periods many sellers offer in the interest of advertising a low monthly payment, and many economically vulnerable citizens are buying cars only to find themselves unable to pay due to work or health circumstances.
While the trend in the default rate seems concerning, Fitch says the depth of the recession saw rates at 13 percent, so a crisis point is far from being reached.
CincyDavid on Mar 07, 2016
Our household is a mish-mash...3 cars we own outright, including my 20 year old Volvo wagon with 205,000 miles. We also lease two Hondas, largely because my wife and step-daughter have NO mechanical aptitude and having newish cars keeps them happy, AND prevents brain damage on my part...no more "it won't start" calls. I am at an age and stage that the cheap Honda leases are sounding more and more seductive...our 2016 CR-V costs $265/mo with no money down...put gas in it, coupla tire rotations, 5-6 oil changes and in 2019 it goes back, to be turned in for a new shiny toy of my wife's choosing. The cost per mile on my older cars is pretty low, but I also won't be crawling around under a new Honda putting brake hoses on it...
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