A boom in auto loans continues to support a resurgence in U.S. car buying that has hit its highest sales pace since 2007.
The total amount of outstanding auto loans topped $782.9 billion as of Sept. 30, up $103 billion from the same period last year, according to Experian Automotive’s quarterly report.
That total is the highest point in seven years, Experian said.
At the same time, the rate of loan payments that are more than 30 days late declined to 2.58 percent as of Sept. 30, compared with 2.67 percent a year ago.
Taken together, the report shows that the lending environment continues to be very healthy for both consumers and automakers, said Melinda Zabritski, Experian’s senior director of automotive lending.
“We’ve got strong growth in portfolios, balances are growing, lenders are growing extremely well; but coupled with that, we are still seeing strong payment behavior by consumers,” Zabritski said. “There are some very slight increases in delinquency rates, but at this point they are still very minor.”
According to Experian, the total outstanding balance of loans among consumers with credit scores below prime only increased slightly, to 36 percent as of Sept. 30 from 35.9 percent a year ago.
Also, the lenders and consumers are making better choices with the way they are buying new cars and trucks. In the mid-2000s, millions of consumers took advantage of home equity lines of credit to buy cars. Also, interest rates were higher than they are now.
Zabritski said the availability of credit, combined with consumers’ strong track record of repaying loans, is helping banks justify greater access to loans and helping to boost U.S. automotive sales.
Through October, consumers have purchased 13 million new cars and trucks in the U.S., up 8.4 percent from the same period last year. The auto industry remains on track to sell about 15.5 million new cars and trucks this year – the most since 2007.
During the recession, banks cut off new loans to nearly all consumers without a spotless credit score.
But in the past two or three years, banks have become increasingly willing to provide loans to sub-prime customers, and are allowing consumers to finance over a longer period, with some loans extending as long as eight years.
Zabritski said she isn’t worried about those longer payment terms, and pointed out that cars are lasting longer than ever.
“I think the bigger factor to watch is … how they will manage their future car buying? If the customer is going to come back to the market in a few years, they might be upside down when they come back, but if they hold onto the car, they will be OK,” she said.