Last year marked another strong year for the auto loan market as originations increased compared to 2014, while the mix of loans across the entire credit spectrum held for the fourth year in a row, according to the February Equifax Inc. National Consumer Credit Trends Report.
From January through November 2015, 21.7% of all auto loans originated were issued to consumers generally considered to be subprime. Subprime auto loans consistently have accounted for between 21% and 22% of new auto loans for the past four years. The National Consumer Credit Trends Report cites normal cyclical patterns in delinquency and write-off rates, but also points to a shift in the marketplace with finance companies growing originations more quickly than banks. From January through November 2015, 53.7% of all new auto accounts came through finance companies."Considerable attention is being given to the subprime segment with some analysts mentioning concern that it is growing disproportionately faster than originations to other segments of the credit spectrum, although the proportional mix has remained relatively static since 2012," said Amy Crews Cutts, chief economist at Equifax. "Credit performance is still excellent, showing that lenders are prudently extending credit to well-underwritten borrowers.
"Lenders are making more informed lending decisions and the underwriting process has been strengthened as a result of new data and technology that is available to the marketplace,” she added. "For example, today lenders have access to instant income and employment verification which help to accurately portray a consumer's ability to repay the debt."
Other highlights from the report include:
- Originations are at Highest Levels Since 2008: More than 26.8 million auto loans, totalling $554.8 billion, were originated between January and November 2015. This is a 9.4% increase in accounts and a 12.4% rise in balances over the same time period in 2014. These are the highest levels for the period since Equifax began tracking this data.
- Increase in Car Sales Drives More Loan Activity: 5.8 million auto loans have been originated between January and November 2015 to consumers with an Equifax Risk ScoreSM below 620. These are generally considered subprime accounts. This is an 11.2% increase over 2014. These newly issued loans have a corresponding balance of $104.2 billion, a 14.5% increase year-over-year.
- Delinquency Rate for Auto Loans Remains Unchanged: Total auto loan and lease severe delinquency rate in January were 1.15%, the same as in January 2015. (Severe delinquency is defined as loans 60 or more days past due or in collections and calculated as a share of outstanding balances). The recession peak delinquency rate was 2.84% in January 2009.
- Loan Write-offs Saw Modest Increase: Write-off rates on total combined auto loans and leases outstanding rose to 22.5 basis points in January, up 1.8 basis points from the same month last year. (Write-offs are defined as accounts that terminate in severe derogatory or bankruptcy status and are calculated as a share of outstanding balances). Write-offs peaked at 50 basis points in March 2009.
- Severe Delinquency Rates on Bank Loans Remained Consistent: Severe delinquency rates on auto loans held by banks were 0.48%in January 2016, up from 0.46% a year ago. Severe delinquency rates on loans originated to consumers with subprime credit scores were 2.15%; in January 2015 they were 2.06%.
- Delinquencies Experienced a Slight Decline in Finance Company Portfolios; Loan Write-offs Remained Consistent: Severe delinquency rates in January on auto loans held by finance companies were 1.99%, down from 2.01% in January 2015. Among subprime accounts, the severe delinquency rate fell from 4.76% a year ago to 4.72% in January.