The State of the Auto Financing Industry

T

he auto industry has been crowing about its economic recovery for about a year, but one thing that doesn’t get much notice is the state of the auto financing industry. And, if increasing auto sales are an indication of an economic recovery, the news from the auto-financing sector is even more encouraging.

It stands to reason that if more people are buying cars there must be more people taking car loans, but it’s the nature of those loans and the behaviors of the borrowers that are most encouraging.

During the worst years of the recession, many car buyers were borrowing against home equity to make their down payments, but lenders are seeing a decrease in that behavior as more people return to traditional auto financing.

“We’re not quite back to where we were before the recession,” points out Melinda Zabritski, director of automotive credit at Experian Automotive. “But we’re really close.”

Of course, one reason for the increase in auto lending is the low interest rates. “The auto financing market is enjoying low rates on loans,” Zabritski says. “Used car rates are well under nine percent and new rates are as low as five percent.”

Our own data backs up these claims. Web2Carz has seen a 20-percent increase in traffic to our car loans section over last year.

Also encouraging is the increase in activity in the subprime category, since this represents people hardest hit by the recession. According to Experian, subprime lending has increased 11 percent on new vehicle loans and four percent on used bad credit car loans.

But not only are more people getting car loans, they’re doing a better job of keeping up with their payments, which may be the most encouraging sign that the economic burdens created by the recession are lifting. Experian reports a decline in 30- and 60-day delinquencies, as well as a reduction in the number of repossessions and charge-offs (when the bank considers a loan not likely to be paid).

More people borrowing—and making their payments on time—isn’t just good for the auto industry; it shows an encouraging growth in consumer confidence. And that’s good for everyone.