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Average Terms Hit 66 Months for First Time

SCHAUMBURG, Ill. - 

As the subprime financing market continues to expand, Experian Automotive determined that loan terms continued to lengthen with the average automotive loan term reaching 66 months for the first time.

According to Experian’s latest State of the Automotive Finance Market report, loan terms in the first quarter of this year reached the highest level since the company began publicly reporting the data in 2006.

The analysis also showed that loans with terms extending out 73 to 84 months made up 24.9 percent of all new-vehicle loans originated during the quarter, growing 27.6 percent since the first quarter of last year.

The average amount financed for a new vehicle loan also reached an all-time high of $27,612 in Q1 2014, up $964 from the previous year. In addition, the average monthly payment for a new-vehicle loan reached its highest point on record at $474 in Q1 2014, up from $459 in Q1 2013.

“As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,” Experian senior director of automotive credit Melinda Zabritski said.

“The benefit of a longer-term loan is the lower monthly payment; however, the flip side of that is consumers can find themselves paying more in interest or being upside-down on their loan if they seek to trade their vehicle in early. It is definitely a choice that consumers will want to weigh carefully before making a final purchasing decision,” Zabritski continued.

Experian indicated that consumers also continued to lease new vehicles at record levels.

Of all new vehicles financed, 30.2 percent were leased in Q1 2014, compared to 27.5 percent in Q1 2013. Interestingly, of all new vehicles sold (whether financed or purchased in cash), a staggering one in four, or 25.6 percent, were leased in Q1 2014, compared to 22.9 percent in Q1 2013.

Overall, loans and leases for new vehicles were easier to obtain in Q1 2014. For new vehicle loans, the average credit score was 714, down from 722 in Q1 2013. For leases, the average credit score was 721 in Q1 2014, compared to 731 in Q1 2013.

“Over the last several quarters, leasing has come back as a very desirable option for consumers,” Zabritski said.

“Whether they are interested in getting the latest and greatest models or simply do not want to commit to a long-term purchase, consumers are leasing new vehicles in greater numbers than ever before,” she continued. “However, what they need to remember is that without good credit, it may be more difficult to get a lease, and that leases have mileage caps so they need to make sure their lifestyle fits the leasing requirements.”

Meanwhile, Experian noticed that subprime financing roses for new vehicles but dropped for used models.

Market share for nonprime, subprime and deep subprime new vehicle loans rose slightly in Q1 2014 to 34.34 percent from 33.68 percent in Q1 2013.

For used vehicles, nonprime, subprime and deep subprime loans accounted for 64.2 percent of all loans, down 2.6 percent from 65.91 percent in Q1 2013.

Zabritski pointed out four other trends from the latest data, including:

—The average credit score for a used vehicle loan in Q1 2014 was 641, up from 637 in Q1 2013

—Average monthly payments for used vehicles rose from $348 in Q1 2013 to $352 in Q1 2014

—New vehicle interest rates rose from 4.47 in Q1 2013 to 4.54 percent in Q1 2014

—Used vehicle interest rates rose from 8.75 percent in Q1 2013 to 9.01 percent in Q1 2014

Available Credit and Long Terms to Drive May New-Car Sales Higher

SANTA MONICA, Calif. - 

Edmunds.com is projecting that seasonally adjusted annual rate for new-vehicle sales this month will increase thanks to the favorable financing conditions that still are in place.

Site analysts forecasted that 1,547,771 new cars and trucks will be sold in the U.S. in May for an estimated SAAR of 16.2 million. The projected sales will be an 11.5 percent increase from April 2014 and a 7.3 percent increase from May of last year.

 “Credit conditions are making it easier to buy or lease a new car,” Edmunds.com senior analyst Jessica Caldwell said. “Shoppers are opting for longer terms at lower interest rates. In other words, they’re able to afford more expensive cars by keeping their monthly payments at or near what they’re used to paying.”

Edmunds.com’s finance data shows that the average new-vehicle loan term during the first four months of this year was at an all-time high of 66 months. And the average interest rate for new loans (4.4 percent) so far this year is only slightly higher than the all-time historic lows that have been well publicized within the last two years.

Edmunds.com also points to loans secured with lower credit scores and all-time high lease penetration (27.9 percent year to date, through April) as sure signs that credit continues to loosen.

The site added that that the retail SAAR will come in at 13.2 million vehicles in May, with fleet transactions accounting for 18.3 percent of total sales.

Edmunds.com said an estimated 3.05 million used vehicles will be sold this month for a SAAR of 36.4 million, compared to 3.10 million or a SAAR of 35.9 million used sales in April.

Global Payments and Reynolds Reach Solution Agreement

ATLANTA and DAYTON, Ohio - 

Earlier this week, dealership software, services, and forms provider Reynolds and Reynolds and payment solutions provider Global Payments announced an agreement to offer point-of-sale, electronic payment solutions for dealerships.

As part of the agreement between the two companies, Reynolds will add Global Payments’ payments technology across Reynolds dealership management system (DMS) platforms and software solutions to deliver secure, cost-effective, and efficient electronic payment solutions in-store, online, and on mobile devices.

“Consumers today expect their experience with the dealership to mirror their experiences with other retailers,” Reynolds president Ron Lamb said. “That expectation applies whether the consumer is browsing the dealer’s website or paying for service at the dealership.

“To meet those expectations, dealers are looking for the tools that support a familiar shopping experience for consumers,” Lamb continued. “Certainly, one of those tools is secure, efficient payment processing with the dealership.”

Lamb noted that adding payment technology will also deliver a number of productivity benefits for dealership personnel, in addition to the consumer benefits.

“This partnership demonstrates the strength of Global Payments’ distribution, combined with a differentiated service offering,” said Eddie Myers, president of Global Payments’ integrated solutions division.

“Our ability to provide a breadth of integrated payment processing products and services is ideally suited to meet the needs of automotive dealerships, especially when combined with the strength of Reynolds’ other technology offerings,” Myers went on to say. “We continue to expand our technology channel across different vertical markets and segments.”

Lamb also elaborated about why Reynolds chose to align with Global Payments.

“As we looked for payment processing solution partners, we looked for companies that shared our vision for the consumer experience, security, and advanced technology. We found this in Global Payments, as well as a company with deep experience in their industry,” Lamb said.

“Adding this technology is one more step for Reynolds in helping dealers improve how their businesses operate and how they deliver a true retail experience to their customers,” he added.

4 Tips to Help Shoppers with Poor Credit

SANTA MONICA, Calif. - 

Based on the thinking that the right approach to financing a vehicle can help subprime buyers get their credit back on the right track, Edmunds.com offered four recommendations that dealers can share with consumers to help with the process.

Those four suggestions included:

1. Run your credit report. AnnualCreditReport.com offers one free report per year from each of the major credit reporting companies. The report will help you identify “risk factors” in your history — such as old debts and unpaid fines — so that consumers can fix them. Edmunds.com recommended taking this step at least three months before people plan to buy so that they can take action on any outstanding items before engaging with the dealership and other lenders.

2. Get pre-approved for a loan. If the buyer’s credit is bad, they can expect to pay a high interest rate on the loan. But the site said that doesn’t mean consumers shouldn’t shop around for the best possible rates. The site mentioned people should check with their bank or credit union since they may be more willing to approve if the consumer already has an existing financial relationship.

3. Show that you’re a good credit risk. When consumers apply for financing — especially at a dealership — they should bring proof of improved financial stability. These items may include a recent pay stub, a utility bill and a list of personal references

4. Stay well within your price range. Just because a consumer qualified to buy a $22,000 midsize sedan, that doesn’t mean they should buy it. For example, if the buyer scales back and purchases a $17,000 compact sedan, he or she will free up $100 per month. This is money they could use for gas, insurance or other bills.

“Contrary to popular belief, there are a number of reasons why a lender would help somebody with a troubled credit history to buy a new car,” said Edmunds.com consumer advice editor Ronald Montoya.

“If you do your credit homework, shop within your price range and make all of your payments, you'll not only improve your credit score but you’ll also practice positive finance habits that will serve you well for years to come,” Montoya continued.

April Spending on New Models to be Highest Since 2005

WESTLAKE VILLAGE, Calif. - 

This month’s projected new-vehicle sales activity is likely to push lenders’ portfolio total higher — along with elongated terms connected with those contracts.

J.D. Power estimated that consumers will spend $33.5 billion purchasing new vehicles this month, a historic record level for the month of April. The previous April high was $30.5 billion in 2005.

“The April 2014 consumer spending reflects a combination of record average transaction prices — which, at nearly $29,800, surpasses the previous April high of $28,754 in 2013 — and strong retail sales volume,” said John Humphrey, senior vice president of the global automotive practice at J.D. Power.

J.D. Power’s data shows changes in who is buying new vehicles and how they are paying for them.

Buyers 35 years of age and younger are expected to account for 25 percent of new-vehicle retail sales in April, marking a rebound to pre-recession levels.

Additionally, J.D. Power indicated nearly one-third of new vehicles sold in April will be financed with a loan of 72 months or longer, with younger buyers in particular using the longer term loans to manage their monthly payments.

“Among buyers who are 35-years old and younger, 44 percent opt for 72-month or longer loans, while only 25 percent of those who are 55 years and older use an extended loan term,” Humphrey said.

J.D. Power projected that retail light-vehicle sales in April are expected to come in at 1.1 million units, 5 percent higher than in April of last year.

The seasonally adjusted annualized selling rate (SAAR) is expected to be 13.3 million units, more than 700,000 units higher than a year ago, according to J.D. Power.

Meanwhile, Edmunds.com is anticipating a robust new-vehicle sales performance for April.

Edmunds.com predicted that that 1,401,606 new cars and trucks will be sold in the U.S. in April for an estimated SAAR of 16.2 million. The projected sales will be an 8.7 percent decrease from March, but a 9.1 percent increase from April of last year.

The site’s forecast anticipates that the auto industry will enjoy its best April performance since franchised dealers sold 1,444,587 vehicles in April 2006.

“April’s numbers suggest that car shoppers are still motivated to buy new cars, erasing any doubts raised by lackluster sales at the beginning of the year,” Edmunds.com senior analyst Jessica Caldwell said. “The sales performance the last two months is more in line with what we projected for 2014, and there’s every reason to believe that car shoppers will continue to keep this pace.”

Subprime Surge Helps March Used Sales Soar

BANDON, Ore. - 

CNW Research reported that March used-vehicle sales rebounded significantly versus the previous month in part to a surge of subprime buyers during the peak of tax season.

Monthly used-vehicle sales surpassed 3 million units for the first time this year as CNW computed the March figure came in at 3.088 million. That figure represents a gain of more than 50 percent from February’s sales amount, which was 2.055 million.

“And it wasn’t just in the franchised channel. Independents and Casual sales also showed significant 50 percent increases versus February,” CNW president Art Spinella said.

The firm determined franchised dealerships sold more than 1 million used vehicles in a month for the first time in 2014 as these stores turned 1.096 million units. Sales at independent dealerships also topped the 1-million mark. Private party transactions came in just below that threshold as the firm put the total at 985,316.

Goosing those figures was the amount of subprime buyers who made a used-vehicle purchase thanks to an influx of tax-refund cash.

CNW indicated the number of subprime buyers in March rose 17 percent versus a year ago and soared 57 percent above the February figure.

Meanwhile, the firm noted that sales to consumers with FICO scores below 550 spiked 51.6 percent month-over-month. Sales to those deep subprime buyers also jumped 11.8 percent in March versus the same month a year earlier.

All told, CNW said about 3 percent more units were financed in March versus a year ago.

As an industry on a year-over-year basis, CNW determined that used-vehicle climbed 2.7 percent with franchised dealer sales units up 1 percent, independent dealer sales up 4.8 percent and private party transactions gaining 2.55 percent.

“But the good news doesn’t stop there,” Spinella said. “Franchised transaction prices rose a healthy 10.8 percent on the back of growing certified pre-owned units.

“Independents also saw an increase in transaction prices but at a more modest 1.52 percent versus year ago while private party sucked a lot of newer (15-plus year old) models off the market and was able to make a 5 percent increase in transaction prices,” he continued.

Spinella pointed out that the used-vehicle industry generated these sales numbers with 13 percent fewer used shoppers searching lots versus year ago, “indicating the pent-up demand log jam may well be breaking.”

BillingTree Makes Move into Auto Finance Sector

PHOENIX - 

A wide array of firms and analysts dissect trends and more about how consumers use their mobile devices to find the vehicle they eventually end up purchasing. The popularity of mobile devices prompted on-demand payment processing technology provider BillingTree to look at how those same individuals could stay engaged through the duration of their financing or lease contract and beyond.

As a result, BillingTree is leveraging its experience in the debt collection space by venturing into auto finance. The company is less than a year into the process, but initial objectives are already being reached.

In late January, BillingTree announced a suite of new solutions that can allow auto finance companies to expand mobile payment options to consumers, and to manage and extend customer relationships beyond their initial purchase through digital marketing promotions and value-added customer service.

BillingTree’s mobile payment and lifecycle management solution can enable customers to view and pay their bills by scanning a QR code from their smartphone and instantly access their account information and payment options. Lifecycle communications features allow auto lenders to automatically identify and execute upsell, cross-sell and promotional marketing opportunities to online and mobile customers based on their buying behavior. Both solutions are supported by BillingTree’s partnership with ZNAP, a mobile payment and business automation platform provider.

“To grow revenues and remain competitive, auto lenders need to keep pace with consumer buying habits and extend their relationship beyond the point of sale,” said Marya Ulis, BillingTree’s auto finance market general manager.

“By offering the convenience of mobile payment and the added value of mobile customer lifecycle management, BillingTree is helping auto finance companies to transform an initial sale as the beginning of an ongoing conversation with customers about their needs,” Ulis continued.

BillingTree’s auto finance solution can allow finance companies to accelerate, streamline and automate payment processing and posting for vehicle loans and leases. It also can enable companies to drive customer loyalty and maximize revenue potential through ongoing digital communications during the entire lifecycle of a consumer’s loan or lease.

Finance companies can use BillingTree to deliver referral incentives, vehicle trade-ins or upsell promotions and other value-added services like extended warranties or service plans.

“This is your opportunity to create a consumer who is a lifetime consumer,” Ulis said. “Every marketing person will tell you it’s a lot cheaper to keep a customer happy and get them to buy from you again versus going out into the marketplace and finding new customers. Our mobile application addresses it head on.”

Ulis noted BillingTree will extend these activities to the mobile channel as well as enable consumers to make their loan payments securely using a mobile device, with the options to configure payment reminders, make partial payments and schedule future payments.

“Auto finance is a perfect example of an industry where mobile technology offers significant value to businesses with the strategic foresight to recognize and seize these opportunities,” said ZNAP North America chief executive officer Greg Gresh. “We are proud that BillingTree has selected ZNAP to expand its proven payment solutions to the mobile marketplace.”

Enhancing Compliance

Because BillingTree has been involved with debt collection companies for more than 10 years, Ulis insisted the auto finance solution can help with compliance, an element that’s intensified with the emergence of the Consumer Financial Protection Bureau.

“Everything we do is always wrapped around this notion of the more you automate, the more compliant you can be,” Ulis said. “The more you move away from a consumer who is writing a check and a physical human being who is processing that or answering a question because there’s automated way to do it, you lose your opportunity to enforce consistent rules for a particular consumer. Anything that is built, whether it’s a mobile application or Web application or phone application, it all allows companies to automatically enforce their business rules consistently. Otherwise, you have to make an exception and that requires interaction with an agent.

“If it’s moving toward a default and repossession, you can prove with automation that you treated them just like everyone else in the same situation,” she went on to say.

“Because we’re done this in the collection agency space, we’ve concentrated on how to do it effectively to go after your consumers you can get to pay because we understand that’s what it’s all about,” Ulis added. “But also how you can do it in the most compliant way so you’re using systems for documentation and more.”

Auto Finance Vital to Company’s Growth

Moving into servicing the vehicle finance industry is just a part of BillingTree’s recent success.

In 2013, BillingTree topped its previous year performance by securing more than 44 percent growth, including new accounts from larger ARM customers while also making inroads into the auto finance market.

The company, which celebrated its 10 year anniversary in 2013, also saw continued growth from additional vertical markets, including healthcare.

In an environment where regulatory compliance was a key concern for many organizations, BillingTree also launched a Compliance Suite, introduced in late November to clarify, simplify and automate the payment compliance process. The suite includes a dynamic knowledge portal containing timely compliance information, offers automated training including best practices and assessments, plus access to leading complaint resolution management systems.

The suite was conceived following the BillingTree 2013 survey of industry operations managers that revealed significant concerns related to compliance, specifically new hurdles brought on by the CFPB and its impact on the market’s growth potential.

“As BillingTree enters its second decade, the company’s vision ‘to simplify the often confusing world of electronic payments’ continues to resonate,” BillingTree president and CEO David Roberts said.

“In a year that saw substantial regulatory enforcement and change, our customer first program and compliance suite initiatives were widely appreciated by customers coping with ever increasing compliance requirements. We’re excited to continue supporting our customers’ growth and challenges in 2014,” he concluded.

TransUnion Study Reaffirms Auto Loan Payment Importance

CHICAGO - 

The latest update of an ongoing TransUnion study showed consumers continue to place an emphasis on paying their auto loans before their mortgages and credit card payments — and by a wide margin.

TransUnion contends this trend has been in place since at least 2003.

Ezra Becker, co-author of the study and vice president of research and consulting for TransUnion, told SubPrime Auto Finance News this week that trends showing the importance of vehicle installment contracts goes back even further. Becker and TransUnion’s analysts arrived at that assertion while examining some data from 2001.

“Even when home values were skyrocketing, even when unemployment levels were essentially at a point where we were at full employment, auto loans were still the first thing to get paid,” Becker said.

The study was completed using a series of monthly cohorts of anonymous consumer information from December 2002 through December 2012. Each cohort was composed of consumers who had at least one mortgage, auto loan and credit card open and in good standing as of the cohort definition month.

The credit performance of each consumer was evaluated 12 months later using a 30 days past due or worse definition of delinquency — thus the performance data span December 2003 through December 2013. Each monthly sample included approximately 2.5 million consumers.

As a result, TransUnion pegged the auto loan delinquency rate at 0.87 percent with the levels for mortgages (1.71 percent) and credit cards (1.83 percent) coming in twice as high.

Becker explained the reason TransUnion is organizing this ongoing study is “to see if consumers choose to go delinquent on one product over another. When they’re running out of money, what do they choose to pay and not pay?”

He continued: “What’s very interesting to us is conventional wisdom historically has been that if consumers pay one thing and only one thing, it’s going to be their mortgage. But that’s not the case.”

Becker then shared some theories as to why consumers often keep their vehicle financing current while letting mortgage or credit card commitments slide.

“When we try to explain it, it’s merely conjecture but it is easier to sell a car than it is to sell a house. You can list your car on Craigslist and get offers. You don’t have to worry about formal appraisals. You don’t have to worry about a formal closing. It’s a very different process as far as the negotiations for auto loans than it is on a house,” Becker said.

“We’re not saying that people value their cars more than their houses. We’re saying that they paid their auto loans more often than their mortgage notes,” he continued. “It could be that even if you can’t afford the auto loan, it’s easier for you to exit that loan and be whole than it is for you to exit the house and be whole.

“There’s also an element that people use their cars to do a lot, to get to work, to get their kids to school, to buy groceries, to do all sorts of things. Unless you’re in one of those limited parts of the country that have effective public transportation like metro Washington D.C. or downtown Chicago or New York, it is pretty tough to get around without a car. It’s certainly more inconvenient,” Becker went on to say.

Top 5 Cheapest Places to Finance a New Car

LOS ANGELES - 

With an average of tax refund of more than $3,000 coming to consumers, GOBankingRates analysts sought out to find the states and cities that boast the lowest interest rates on new-vehicle loans this month.

The site’s study determined the five cheapest states for financing a new vehicle include:

— Hawaii: four-year loan at 1.9 percent

— Delaware: five-year loan at 2.34 percent

— Rhode Island: five-year loan at 2.34 percent

— Washington, D.C.: five-year loan at 2.34 percent

— Virginia: five-year loan at 2.44 percent

Meanwhile, the site found the five cities with the lowest new-model loan rates for a three-year contract to be:

— Detroit: 2.67 percent

— Long Beach, Calif.: 2.71 percent

— Oakland, Calif.: 2.72 percent

— Portland, Ore: 2.80 percent

— New York: 2.81 percent

This study surveyed base auto loan rates for three-, four- and five-year terms from banks and credit unions located in the United States as of March 3. Data was compiled from the GOBankingRates interest rate database, which in partnership with Informa Research Services, aggregates interest rates from more than 6,000 financial institutions.

GOBankingRates managing editor Casey Bond explained why these rates are no noteworthy in connection with the height of tax season currently ongoing.

“As the Fed rolls back on its quantitative easing initiative, which kept interest rates artificially low for more than five years, rates will begin to rise again, making the cost of borrowing increase as well,” Bond said.

“The average tax refund is equivalent to a 20 percent down payment on a $15,000 auto loan; combined with today’s very low interest rates, it is a great time to buy a car,” Bond continued. “In fact, qualified car buyers can expect to find a three-year loan around just 3 percent. Three years ago, you’d pay double.

“Car loan rates won’t stay this low for too much longer. Eventually, auto lenders will need to increase the cost of borrowing to match the national rising rate trend. For anyone considering a vehicle purchase, this tax season might be the last chance to get in on an auto loan at a rock-bottom rate,” Bond went on to say.

Equifax’s Key Auto Market Trends for 2014

ATLANTA - 

Will buyers flock to showrooms to buy new vehicles this year? Market optimists seem to think so. And most who attended the North American International Auto Show are utterly ebullient. But those who believe the glass is half empty say trends are heading in the opposite direction.

Several key factors are pushing sales up, including:

Rising pent-up demand

While 15.5 million new vehicles were sold in 2013, the gap between the number of new cars that should have been sold and those actually sold is huge — about 26 million vehicles as of year-end.

Scrappage rates up in 2014

Vehicles cycle through owner after owner until they're ultimately scrapped. The ratio of cars scrapped to the total cars on the road — the scrappage rate — measures how many cars are removed from circulation in a given year. Many new vehicles bought during the auto boom years of 1999-2007 are entering the prime period for scrappage, pushing up new vehicle sales in the coming years.

Strong economy, low interest rates and new technology

Most economists believe consumer confidence will rise, interest rates will remain at record lows (around 4 percent for credit worthy consumers) and new technology will draw non-luxury buyers into showrooms. 

The economy is the driving force.  Here are factors that could potentially push sales down:

Auto density dropping

Auto density — or the number of vehicles per driver or household — has been sharply declining since 2006. Even a 1 percent change in this density can equate to as many as one million new vehicle sales annually.

Used vehicles more attractive

The number of new vehicles purchased has been steadily declining since 1976. Rising gas prices have reduced miles driven, and the quality of vehicles has been rising steadily, making them more reliable. These factors have prompted consumers to keep their existing vehicles or purchase a low-mileage used one.

Desire for vehicles waning

Public transportation and ride share services like Zipcar are more cost effective for an increasing numbers of city dwellers. Many millennials, pummeled by the Great Recession and student loan debt, are thinking twice about buying a new vehicle. Similarly, retiring Baby Boomers no longer feel the need to buy a new vehicle every four years.

Final observations on auto market financing

New car and light truck sales for 2014 are estimated to hover around 16.4 million. The number of vehicles financed will likely rise, and the total cost of financing will influence buying decisions. Auto lenders, particularly non-bank lenders, will explore new ways for buyers with less-than-perfect credit scores to obtain credit. Auto loan securitizations among Wall Street investors are on an uptick, which will increase access to financing and raise demand for detailed consumer credit data.

For more information on Equifax Automotive solutions, visit www.equifax.com/automotive.

Dennis Carlson has spent his life analyzing data as a vehicle to better understand the world. His first science fair project was predicting wins in baseball using a calculator and team statistics from the Baseball Encyclopedia.  After graduating from the University of Florida, the life-long ‘data junkie’ studied graduate statistics at Cornell University. A 14-year financial services veteran, Carlson leveraged the power of data, analytics, and predictive modeling to transform how financial institutions and merchants relate to their customers for American Express and First Data before joining Equifax in 2012. He now serves as the deputy chief economist where he continues to tap his unique combination of data science and industry acumen to provide analytical insights to advance the business of both Equifax and clients.

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