COSTA MESA, Calif.-As banks and credit unions both increase subprime auto lending, what concerns one analyst most is extending loan terms across all credit categories.
According to a recent Experian report, banks and CUs combined increased their deep subprime lending last year for new cars by 30.9% over 2011, and 11.5% for subprime. Melinda Zabritski, director of automotive credit, pointed out that while the percentage gains are large, lending below prime still represents less than 12% of the overall new car loan market.
Average Term Now 65 Months
What is more top of mind with Zabritski, she said, is a continuing trend of extending terms. The average new car loan term moved up to 65 months by the close of 2012, up from 63 months in 2011. Zabritski noted that the longer terms are bringing overall payments lower as the average amount financed for a new car increases ($26,691). The average monthly payment on a new car loan ($460) dropped by $8 in 2012 over 2011.
"These longer-term loans bring the payment down, which is good for the economy," said Zabritski. "It gets more people buying cars, as consumers are often payment shoppers."
However, Zabritski wonders if lenders are forgetting what happened right before the recession, when a lot of long-term loans had consumers upside down on their cars when they traded them in.
"The long-term loan does not mean consumers hang onto their car longer. Just before the recession a lot of consumers were rolling negative equity into their next loan," Zabritski told Credit Union Journal. "A lot of problems hit at the same time."
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