A record number of consumers took out an auto loan or lease when car shopping in the second quarter of 2013. According to Experian Automotive’s analysis of second-quarter data, 84.5% of consumers used financing when getting a new car.
That’s the highest that share has been since Experian started tracking the statistic in 2006. Last year at this time, loans and leases made up 82.5% of the market, and in 2008, before the Great Recession, they accounted for 79.7%.
Increased Access to Financing
The data also showed a decline in interest rates for both new and used cars, which contributes to the high use of lenders, according to Melinda Zabritski, senior director of automotive credit for Experian Automotive. The average interest rate on a new car loan was 4.46% (down from 4.63% in second quarter 2012), and on used car loans it was 8.56% (down from 8.95%).
“Loans have become more accessible in recent years, and we’ve seen a steady growth in the percentage of consumers financing their vehicles,” Zabritski said in a news release about the data. “Obviously, this is good news for the auto industry, but it’s also good for consumers because this, combined with the reduction we have seen in delinquencies, shows that they are feeling more confident in their ability to take on more debt and pay it off in a timely manner.”
Not only was financing more common, the average loan balances were higher last quarter. The average new loan balance was up $812 year-over-year for an average of $26,526. Used loans also saw an average balance increase $480 to $17,913.
The balance increases, along with slightly longer loan terms, could explain the slight uptick in average monthly payments on new loans, which increased $5 year-over-year to $457. The average term of these loans increased by one month to 65 months. Monthly payments on used cars held steady at $351, though the loan term increased by a month, as well, to 61 months.
Leases generated a lower average monthly payment than those for new loans — $408 a month for 35 months. But leases usually go to consumers with higher credit scores, as shown by the average scores among leases and new loans: 760 vs. 749.
Car Loans and Credit History
Consumers’ credit scores impact their ability to qualify for loans and obtain decent interest rates. For instance, the average credit score for a used car loan was 660 last quarter, and the average interest rate was 8.56%. Compare that with the average 749 score and 4.46% for new car loans.
Before car shopping, consumers should check their credit reports and credit scores, not only to get an idea of financing options but also to make sure everything is accurate. And if their credit scores aren’t great, consumers can take steps to raise them, using the insights provided by a tool like Credit.com’s free Credit Report Card, which gives you a monthly update on your credit.