In the US payments for new and used cars has reached a historic high
In terms of growth of average credit score required for auto loan, the proportion of customers of category subprime has reached its lowest level in 11 years. According to the report on the state of the loan market for the third quarter of 2018 Experian loans to customers “sub-Prime” (subprime) and “deep subprime” (deep subprime) categories to 21.19% of the market, which is 1.5% lower than a year ago.
This decline in the share of loans subprime category, partly due to high growth in less risky segments of the market — in particular, in the category used cars where more than 50% of the credits fall on the share of trustworthy borrowers categories of prime and super-prime, for the first time since the third quarter of 2010, Loans to customers of a category subprime is a small fraction (22,86%) of used car market and the credit categories, deep-subprime reached a historic low of 4.33%.
“The loan market, like many other industries, the inherent cyclicality. When the share of loans subprime category reaches historic low, such a situation cannot be called unprecedented, said Melinda Zabritski, senior Director, Experian car loan. – Change of market share can be attributed to various factors, including improved payment discipline of borrowers and the increased availability of cars. Credit institutions should closely monitor these trends in order to make the right decisions and adjust risk management strategies”.
According to some experts, a determinant of customer preferences is the availability of cars. “Many motorists make the decision on purchase based on the size of the monthly payment. With such a significant difference between payments for new and used cars, borrowers often make a choice in favor of cheaper cars, says Zabritski”. Monthly payments for new and used vehicles have again reached a record high value of $530 and $381, respectively — and the gap between these two types of payments continues to grow. Today it is $149. Interest rates also share this General growth trend. The average interest rate of the loan for a new car in the third quarter of 2018, equal to 5.73% (5,10% in the third quarter of 2017), and loan on used car – of 9.03% (up from 8.72 per cent in the same quarter last year).
Other research findings:
• The average credit score to get a loan for new and used car continues to grow and is 717 and 661, respectively
• Outstanding balances on auto loans reached $1,17 trillion, but annual growth is slowing
• The level of arrears at 30 and 60 days for the third quarter decreased from 2.39% to 2.23% and from 0.76% to 0.72%, respectively
• Credit cooperatives continue to demonstrate a significant increase in market shares of lending for the purchase of new and used cars: 10.7% and 5.2%, respectively
• The average loan term for the purchase of a new car fell to 68,47 months.
• The amount of the loan on a new car climbed to its highest level in the third quarter – $30 977, an increase of $647 annually
The study provided