Auto loans rise as banks ramp up financing for used cars

Used vehicles

Good credit not necessary.

REUTERS/Peter Jones

NEW YORK (Reuters) – A record number of U.S. consumers are taking out loans to buy cars, particularly those buying used vehicles, data showed on Wednesday.

In the second quarter, 85% of new car purchases and 53.8% of used car purchases were financed, according to data from Experian Plc., an information provider.

This represents an increase of 0.5 percentage point and 0.9 percentage point, respectively, compared to the same period in 2013.

Additionally, the size of car loan amounts and monthly payments continued to increase, especially for used cars. Since the second quarter of 2013, the average used vehicle loan has increased 1.9% to $18,258 and the average monthly payment on these vehicles has increased 1.1% to $355, two record highs. previous.

“More consumers, especially those with credit issues, are looking to the used-vehicle market as a viable option for purchasing their next car,” said Melinda Zabritski, senior director of auto finance at Experian, in a statement.

On Wednesday, automakers released August sales data. Analysts expect the pace of sales for the year to remain well above 16 million new vehicles. Chrysler and Nissan saw their new car sales increase significantly in August.

Banks were the biggest lenders to consumers buying used cars, financing 35.6% of all such purchases, down 0.8 percentage points from the second quarter of last year.

In recent years, banks have begun to focus more on the used car market as in-house car finance departments have come to dominate the new car market. According to Experian, these “captive” finance companies made more than one in two new auto loans in the second quarter.

Regulators have become more concerned about banks’ willingness to lengthen auto loan terms, lend to borrowers with lower credit ratings, and make loans larger than vehicles are worth.

Additionally, the US Department of Justice has begun investigating subprime auto loans that companies such as General Motors Co’s auto finance arm and Santander Consumer Holdings USA Inc. have made and securitized since 2007.

But at least in the second quarter, the share of loans for new cars and used cars going to borrowers with subprime credit ratings declined, according to Experian.

“Lenders are still showing signs of caution when lending to the subprime market and keeping their risk at manageable levels,” Zabritski said.

Over the past few months, various market watchers have raised red flags about subprime auto loans. They expressed concern at a time when automakers selling vehicles in the United States have seen the annualized sales pace push steadily toward 17 million new cars and trucks.

Wells Fargo & Co. remained the largest U.S. auto lender in the second quarter with a market share of 5.75%, down from 5.89% a year earlier.

Capital One Financial Corp. overtook JPMorgan Chase & Co. to become the third-largest U.S. auto lender after Ally Financial Inc. The McLean, Va.-based bank’s share of the used-car market rose from 3.77% to 4.20 %.