Rates & terms creeping up at US used car dealerships

Used vehicle financing activity, in the US, during Q2 2015 at franchised dealerships showed record growth.
According to analysis compiled by Edmunds.com in its latest used vehicle market report, the average amount financed moved 3% higher year-over-year to $20,732.

Regarding the average annual percentage rate (APR), which came in at 7.7%, Edmunds stated: “Loan terms are growing to offset higher prices but for the first time since pre-recession we are seeing average APRs creep higher.

“While nearly 60% of used car buyers financing their vehicle obtained an APR of 5% or lower, many buyers have APRs in excess of 10%”, the company continued in its report, which also mentioned the average used-vehicle retail prices hit a record high in Q2 2015.

Edmunds also pointed out that the average term for a used vehicle installment contract originated franchised stores during Q2 climbed to 66.2 months, extending a steady increase that began in 2009.

Beyond the rising retail prices, Jessica Caldwell, director of industry analysis at Edmunds.com told SubPrime Auto Finance News on Friday that another element is pushing the APR average higher.

Caldwell said: “My feeling is that some of the folks in the subprime market are driving up the averages. It is a law of averages because the majority are paying a lower interest rate. But for every person who is getting a 2% APR, there is someone paying 25%. It definitely affects the averages.”

All of that used-vehicle activity at franchised dealerships — subprime or not — helped to push the industry to a new record in Q2.

According to the New York Federal Reserve’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data, auto loan originations reached a 10-year high in Q2 2015 at $119 billion, supporting a $38 billion increase in the aggregate auto loan balance. That balance is now, apparently, above $1 trillion.