A record number of consumers took out loans to buy cars in the second quarter, fueled by people purchasing used vehicles, according to data from Experian Plc.
In the second quarter, 85% of new car purchases and 53.8% of used car purchases were financed, Experian reported. That was up 0.5 percentage points and 0.9 percentage points, respectively, from the year-ago period.
The share of both new car and used car loans that went to borrowers with subprime credit scores declined, a sign lenders are still cautious and working to keep their risk at manageable levels.
"More and more consumers, especially those that are credit challenged, are turning to the used vehicle market as a viable option to purchase their next car," said Melinda Zabritski, senior director of automotive finance for Experian, in a statement.
Banks were the largest lenders to consumers buying used cars, financing 35.6% of these purchases, or 0.8 percentage points less than the second quarter of last year. Banks in recent years have started to focus more on the used car market as automakers' in-house financing arms began dominating the new car market. Such "captive" finance companies made more than half of all new car loans in the second quarter, according to Experian.
The amount of auto loans, and monthly payments, are rising - especially for used cars. The average used vehicle loan rose 1.9% to $18,258 since the second quarter of 2013 and the average monthly payment rose 1.1% to $355. Both numbers are record highs.
Federal regulators have grown more concerned with the willingness of banks to lengthen terms on car loans, lend to borrowers with lower credit scores and extend loans that are larger than vehicles are worth. The U.S. Department of Justice also began investigating subprime auto loans that companies such as General Motors' auto financing arm and Santander Consumer Holdings USA Inc. have made and securitized since 2007.