Experian Automotive has released its latest report on the auto finance market, and it was a very quarter. The fourth quarter 2015 study digs into the latest updates in outstanding loan balances, risk distribution, delinquency rates, and financing trends.
Here are some of the highlights from the report:
- Leasing: As anticipated, vehicle leasing is continuing to grow. Leasing is reaching all-time highs of all new consumer transactions, according to the State of the Automotive Finance Market report. Leasing made up 28.87% of all new vehicle financing in the fourth quarter.
- High-risk: More leasing is going to the nonprime and subprime consumer segments since one year earlier. High-risk loans have also seen an increase. Experian calls it “modest high risk growth for new financing.”
- Lengthening loans: Loans are continuing to get longer, with 84 months becoming the cap, according to Experian. Loans lasting six to seven years made up nearly 30% of new-vehicle loans during the fourth quarter.
- Share by loan length: New-vehicle loans of 61 to 72 months made up the largest share in the fourth quarter at 42%, with six to seven years taking second place. Loan terms of 73 to 84 months made up 29% of new-vehicle loans in Q4, a 12% increase over the fourth quarter of 2014.
- Low payments: Keeping monthly payments low continues to be popular. Some dealers are encouraging consumers to put down larger down payments to reduce monthly payments, but that does carry to risk of losing some of those sales.
- Loan balances: Outstanding automotive loan balances reached all-time high.
- Used vehicle loans: The percentage of used vehicles with loans has dropped dramatically over the past 25 years – from over 90% in 1990 to 20% in 2015. Some of that trend has been caused by used vehicle life increasing quite a lot in recent years to about 11.5 years for all cars on U.S. roads last year versus about 7.6 years average age in 1990. An interesting fact about loans is that 62.8% of them were for used cars in the fourth quarter.
- Delinquent loans: Watch out for delinquent loans as used vehicle values drop. Trade-ins with a lower value will hurt consumers and lenders. For example, if a consumer with a seven-year loan were to trade in before term end, say, at five years, the consumer would be upside down, and if the loan became delinquent, there would be a greater loss to the lender, said Melinda Zabritski, Experian Automotive’s senior director of financial solutions.
- Top 5 banks: For the top lenders in the used vehicle retail market, the top five in Q4 were (in numerical order: Wells Fargo DS; Ally; Capital One; Chase; and Santander.