The latest data from TransUnion shows that auto loan originations increased at their highest quarterly rate in four years. At the same time, consumers are continuing to shift to used vehicles, while interest rates are on a slightly downward trend. All signs point to now being a great time for dealerships to sell more cars, especially to subprime borrowers.
TransUnion: Auto Loans Originations Increasing
TransUnion’s Industry Insights Report from Q4 2019, which takes a deep dive into the latest consumer credit trends, found that auto loan originations increased in a big way, with used vehicles behind the surge.
Here are the main takeaways from the TransUnion report:
- Car loan originations on the rise – Auto loan originations increased 4.3% in Q3 2019 compared to the Q3 2018. This was the highest quarterly growth rate in four years, and 7.5 million new car loan accounts were originated. Note: TransUnion looks at originations one quarter in arrears.
- Used vehicles leading the way – The share of vehicles financed checked in at 53% for used cars and 47% for new vehicles. Four years ago, these figures were 48% for new cars and 52% for used vehicles. TU says they expect growth to continue in the used financing sector.
- Loan amounts, terms, and payments up slightly – The average loan amount increased 3.3% year-over-year to $22,232. As consumers seek ways to make their auto loans more affordable, loan terms also grew. The average new car loan had a term of 69 months, while it was 64 months for used auto loans. Despite that, average monthly payments grew to $561 for new and to $389 for used vehicle loans.
TransUnion also found that market performance remains relatively strong. The 60-days past due delinquency rate checked in at 1.50%, up from 1.44% a year ago. TU considers this in line with what’s expected with loan balances increasing.
Interest Rates Are Declining
At the same time, auto loan interest rates are decreasing compared to where they were in early 2019. The Federal Reserve raised rates four times in 2018, but dropped them three times in 2019 and once in 2020. The last cut brought overnight rates down to a range of 1.00% to 1.25% in March of 2020. In February of 2019, the range was 2.25% to 2.50%.
This has translated to lower rates for consumers. Bob Serpentini of the Serpentini Auto Group in northeast Ohio told Automotive News that they’ve seen rates drop 0.5% over the last year or so. He said this was even the case for subprime consumers, and subprime loans make up approximately 20% of their business. Other analysts told the outlet similar findings about easing rates.
To further drive this point home, according to the Q4 2019 State of the Automotive Finance Market report from Experian, average new car loan rates decreased 0.37% and average used vehicle loan rates decreased 0.10% compared to Q4 2018.
Car Dealerships Can Take Advantage
With originations on the rise in a big way and performance keeping up, car dealers can, and should, seize the day. Because interest rates are on the decline and used vehicles are growing in popularity, it’s also the perfect time to grow your subprime business.
Used cars hold the majority in terms of the share of vehicles being financed, as consumers look for more manageable prices and monthly payments. In most cases, subprime borrowers are already looking this way to keep costs down, so that works out well.
Whether your store is looking to increase new car sales, used car sales, or subprime deals, Auto Credit Express is here to help. We provide dealers a boost with our new and used car leads powered by CarsDirect Connect, as well as our award-winning subprime auto leads.
We’re real-time lead originators that can help your store move more vehicles and grow its business. Get in touch with us to learn more. Call us at 888-535-2277 or fill out our online contact form now.