Boom times are back, and the auto lending sector is still going strong in 2014, according to the most recent Equifax National Consumer Credit Trends Report.
“Auto lending continues to lead the recovery,” said Amy Crews Cutts, Chief Economist at Equifax. According to the report, while new sales in the auto industry have driven the economic recovery, auto loan balances and new credit issued to borrowers have reached record highs.
Interest rates driving economic recovery
New originations, total loan balances and low delinquency levels on auto lending have largely contributed to the auto sector’s recent boom, according to Crew Cutts.
She explained that today’s consumer activity in the auto sector fits into a longer-term economic buying cycle that takes into account the average age of today’s cars, as well as the favorable interest rate environment.
It has been 10 years since the last strong auto sales market existed, all the way back to 2004. Now, more than a decade later, consumers are finally considering buying new cars to replace their old ones. The average age of cars driven today is more than 11.4 years old. The advanced age of these vehicles, combined with today’s low interest rates and generous financing options for borrowers with good credit histories, is good news for the auto lending sector.
Credit risk for auto loans lowest in over 5 years
As consumers decide to buy new vehicles, many are choosing auto loans to finance their purchases. The latest figures from Equifax are encouraging for the auto loan industry, as they reveal several positive indicators of growth.
Firstly, the total outstanding amount of auto loans in the United States was $884 billion in April 2014, which is 10.8 percent higher than it was a year earlier. This is also a record high.
Secondly, the year-to-date figures for February 2014 show that at $69.6 billion, more new credit was issued than at any time in the past 8 years. This is more than a 13 percent increase from same time the previous year.
Thirdly, the report states that seriously delinquent auto loans now account for less than 1 percent of total outstanding auto loan balances. This is the lowest figure in over five years, suggesting that more borrowers with auto loans are making their payments on time and in full — great news in the auto loan credit risk world.
Expect continued growth
With interest rates providing substantial returns and a strong lender’s market operating at full-tilt, expect to see the auto lending sector continue to flourish as people trade their outdated vehicles for the cutting-edge auto technology offered today.
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