Auto Loans Top $900 Billion, as Risks Rise

By Douglas A. McIntyre Published Aug 13, 6:28AM EDT

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Auto loans stretch out to 84 months, giving new reasons for buyers to get new cars. This and other factors have moved the total auto loan poll to $932 billion. The car industry has to grapple with how many of these loans will be paid back, particularly ones with very long payback terms.

According to Experian Automotive, a research firm that tracks industry trends:

[T]he total dollar volume for outstanding automotive loan balances grew by $92 million from the second quarter of 2014 to the second quarter of 2015. It was the largest dollar volume growth since 2006, according to Experian’s latest State of the Automotive Finance Market report. Findings from the report showed that total loan balances also reached a record-high $932 billion in the second quarter of 2015, up from $840 billion in the second quarter of 2014.

In addition to rapid growth and record-setting dollar volumes, the automotive loan market showed increased stability, as consumers continued to make timely payments. In the second quarter of 2015, the 30-day delinquency rate dropped to the lowest level for a Q2 period in the past five years at 2.32 percent, down from 2.37 percent in the second quarter of 2014. The 60-day delinquency rate was up, but only slightly, from 0.603 percent in the second quarter of 2014 to 0.607 percent in the second quarter of 2015.

However, Bloomberg reports:

Demand for automobile debt in the U.S. is enabling lenders to make longer loans to people with spotty credit, stoking concern that car shoppers are being lulled into debt loads they won’t be able to sustain.

Of the subprime vehicle loans bundled into securities, 73 percent now exceed five years, up from 64 percent during the first three months of 2014, according to data from Citigroup Inc. Loans as long as seven years are increasingly being put into more bonds as auto-finance companies and Wall Street banks sell the securities at the fastest pace since 2007.

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An example of the longer term car loans are the 72-month loans from Ford Motor Co.’s (NYSE: F) troubled Lincoln division, which charges a rate of 2.9%. Also, Hyundai offers 72-month loans on its Azera at a 2.99% rate.

The fact that car companies offer these loans at all must be due to troubles moving inventory. That, by itself, is due to a combination of low demand and terms that make defaults more prevalent.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.