TransUnion's 2016 auto loan forecast projects stable delinquencies throughout the next year, with delinquency levels remaining flat at 1.11% during year-end 2015 and year-end 2016. While delinquency rates stay low, TransUnion projects auto loan balances will continue to rise, with average auto loan debt per borrower expected to increase from $17,985 in Q4 2015 to $18,509 in Q4 2016.
TransUnion forecasts the average balance will surpass $18,500 in Q4 2016, a growth of more than $1,000 over the past two years. By the end of 2016, auto loan debt per borrower will grow more than $3,500 from Q4 2009, when the average balance was $14,956.
"With our stable, growing economy and the continued healthy pace of job growth, consumers are feeling confident enough to take on new auto loans, resulting in a healthy equilibrium between growing balances and low delinquency rates," said Jason Laky, senior vice president and automotive business leader for TransUnion. "Robust consumer loan performance, combined with declining gas prices and low interest rates, will allow lenders to offer slightly larger auto loans to consumers in the coming year without putting their portfolios at risk.”
As average auto loan debt levels rise, TransUnion sees minimal changes in the auto delinquency rate in 2016. Aside from quarterly movements as a result of seasonality, TransUnion forecasts auto delinquencies will remain near all-time low levels. Since auto loan delinquency peak levels in Q4 2009 (1.54%), delinquency rates have declined 28%.
"For the last two years, auto delinquency has remained low as consumers prioritized their auto loan payments," said Laky. "Through the end of 2016, we expect the auto delinquency rate to remain stable at historic, seasonal norms. We believe we have reached a 'new normal' in auto delinquency and see no immediate cause for concern."
TransUnion data show that the number of auto loans has grown every quarter since Q3 2011. In Q3 2015 (the most recent data available), the number of auto accounts grew to 69.4 million, up 8.2% from 64.2 million in Q3 2014. The number of auto loan accounts has grown 15 million from Q3 2011 to Q3 2015.
Despite an increase in the number of auto loans, fewer subprime consumers (those with a VantageScore 3.0 credit score lower than 601) had an auto loan in the third quarter of 2015 than in 2009. In Q3 2009, subprime auto loans comprised 23.7%, or 14.8 million, of all loans. By Q3 2015, the subprime share of auto loans had declined to 18.7% of the total, or 13.9 million consumers.
"The data appear to refute the apprehensions about a subprime bubble-and may even point to an opportunity for growth in subprime auto lending," said Laky. "While auto lenders are certainly extending loans and leases to consumers who present a higher risk, these consumers have been able to manage their auto loan obligations in line with expectations. As auto lenders incorporate trended data into their analyses, we may see even more consumers receiving auto loans as lenders more effectively underwrite previously unscorable consumers.”
On a state level, auto delinquencies are expected to rise in 27 states from 2015 to 2016, with Hawaii (+8.68%), Oklahoma (+7.06%) and Nebraska (+7.02%) projected to experience the largest increases in delinquency. North Carolina (-6.05%), Florida (-5.85%), Kentucky (-5.15%) and Oregon (-4.16%) are projected to experience the largest declines in auto delinquencies.
TransUnion forecasts most states will experience stability or growth in average auto loan balances by the end of 2016. Hawaii (+7.99%), Idaho (+7.54%) and Maine (+5.07%) will experience the largest balance increases, while the average balance in Michigan will decline $305 (-2.26%) and remain steady in Indiana.