Auto loans and leases top $1 trillion

The total amount of outstanding balances on automotive loans and leases in the US has crossed the $1 trillion mark according to credit agency Equifax, which says finance companies are growing originations more quickly than commercial banks.

Equifax’s National Consumer Credit Trends Report shows that as of June 2015, the total outstanding balances on auto loans and leases comes in at $1.021 trillion, a year-over-year increase of 10.5%. Additionally, the number of outstanding accounts has increased 8% from a year ago to 73.7 million.

“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,” said Dennis Carlson, deputy chief economist at Equifax. “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.”

While auto loan balances through June 2015 are growing at relatively similar rates for both banks and finance companies (10.1% and 10.2% year-over-year respectively), the latter is considerably outpacing the former in auto leasing.

Finance companies pull ahead

The report found that finance company lease portfolios are more than seven times the size of bank lease portfolios. Finance companies are also growing originations faster than banks with 54.2% of all new auto accounts and 51.8% of dollar originations through April 2015 coming through finance companies.

Carlson continued: “The captive auto finance companies are supporting sales for the manufacturers, and dealers continue to work with independent auto finance companies to find the right loans for their customers, particularly in the non-prime space. This combination has led to finance companies growing slightly faster than the commercial bank segment.”

The Equifax data also shows that more than 9 million auto loans, totalling $182.9 billion, have been originated through April 2015. This is a 5.8% increase in accounts and an 8% rise in balances compared to the same time as last year. These are the highest levels for this time period since Equifax began tracking this data.

Sub-prime loans increase

Sub-prime loans continue to rise, with 2.12 million auto loans to consumers with an Equifax Risk Score below 620, originated through April 2015, a 9.6% increase over last year.

In 2015 through April, 23.5% of auto loans were issued to consumers with a sub-prime credit score, a slight increase over the 22.7% seen over the same time period last year.

The average amount of all auto loans issued in April 2015 was $20,800, which is a 3.65% increase over April 2014, while the average amount for a sub-prime loan increased 3.74% to $18,200.

Consumers comfortable

Separate research from Experian Automotive’s latest State of the Automotive Finance Market report reveals that the total dollar volume for outstanding automotive loan balances grew by $92 million from the second quarter of 2014 to the second quarter of 2015, the largest dollar volume growth since 2006.

Findings from the report showed that total loan balances also reached a record-high $932 billion in the second quarter of 2015, up from $840 billion in the second quarter of 2014.

However, there are no signs so far of consumers becoming over-stretched. In the second quarter of 2015, the 30-day delinquency rate dropped to the lowest level for a Q2 period in the past five years at 2.32%, down from 2.37% in the second quarter of 2014. The 60-day delinquency rate rose only marginally, from 0.603% in the second quarter of 2014 to 0.607%.

“The automotive loan market is working the way it’s supposed to, with loans being made, vehicles purchased and payments made on time,” said Melinda Zabritski, Experian’s senior director of automotive finance. “The automotive loan market is gaining momentum while maintaining remarkable stability. It’s a good sign for the economy overall.”

The combined 20.02% share for sub-prime and deep sub-prime was up slightly from 19.92% in the second quarter of 2015. Super prime grew from 20.68% share in the second quarter of 2014 to 20.99% share in the second quarter of 2015.

“Overall, lenders are taking a balanced approach to their portfolios, with slight growth in subprime and deep subprime balanced by the uptick in loans to the super-prime risk tier,” Zabritski continued. “There really is nothing alarming about the growth seen in subprime loans, provided consumers continue to make timely payments.”