Swapalease.com reported lease credit approvals during the month of July climbed to the highest monthly level of the year, reversing a trend that saw continuous decline since January largely due to an increase in the number of subprime credit applicants.
The company pinpointed the July approval reading at 81.0 percent.
Despite the high marks in July, Swapalease attributed the growing number of credit declines so far this year to a rising number of vehicle-lease shoppers with subprime credit profiles seeking to enter the leasing market. Different than financing, the company acknowledged most subprime candidates will not qualify for a lease, nor lease takeover, from the bank overseeing the vehicle’s payment schedule.
Even with July’s high numbers, analysts indicated, the year-to-date approvals rate has fallen to 66.5 percent of all lease applicants, compared with a year-to-date rate of 75.6 percent in July of 2013.
Swapalease works to help subprime shoppers elevate their credit profile through a program sponsored by ConsumerDirect.com. Once these shoppers revitalize their credit they can re-enter the Swapalease.com marketplace and reapply for a lease assumption.
“Credit has always been the lifeblood of every lease program, and all lease companies in the Swapalease.com marketplace adhere to their own guidelines,” said Scot Hall, executive vice president of Swapalease.com.
“We will be taking a closer look at the number of subprime candidates that continue to shop in our marketplace, and will look to identify additional programs to help them become qualified lease candidates,” Hall continued.
While advocacy groups and federal regulators continue to be skeptical of the convenience and value dealers present at the F&I office, new data from Edmunds.com is showing the volume of work completed in that store department is climbing to levels never previously seen.
Edmunds.com determined only about 23 percent of buyers in July completed a purchase either with cash or financing arranged on their own as opposed to the remaining 77 percent that included some kind of indirect financing orchestrated at the dealership.
Analysts indicated last month’s trend is on track to be the lowest level ever, and down from about 35 percent just five years ago.
"You can't underestimate how important dealer financing has been to this automotive recovery,” Edmunds.com senior analyst Jessica Caldwell said.
The latest auto loan figures back up Caldwell’s declaration. As previously reported here by SubPrime Auto Finance News, Equifax computed that the total outstanding auto loan balance as of June topped $900 billion for the first time.
“What’s great is we continue to see the momentum. Each month, we continue to see it grow and get stronger. It’s a really positive sign for the car market in general. Growing balances will continue to feed healthy growth for the next three to five years,” said Jennifer Reid, the senior director of product marketing at Equifax Automotive Services.
That growth expectation now and down the line isn’t just coming from prime borrowers, either. CNW Research pointed out that the number of subprime buyers in July rose by a “substantial” amount. CNW pinpointed the jump at 25.5 percent versus the same month a year ago.
And growth in deep subprime — borrowers with credit bureau scores below 550 — expanded by nearly the same rate in July, too. CNW indicated the amount of deep subprime borrowers climbed by 23.6 percent year-over-year.
Perhaps at least aiding in that growth — and aiding in profits for both the dealer and finance company — is the work being completed in the F&I office.
“When you think about more than three-quarters of people are at the dealership getting some sort of financial package, it just seems it’s totally changed from the mindset of a long time ago where you saved money and put down a big down payment,” Caldwell said.
“It seems like there are so many people who buy on monthly payment that the dealer works out for them, whether it’s a lease or financing,” she continued. “People just work within their budget saying, ‘OK, that monthly payment works for me.’ That’s why you see so much happen at the dealership rather people checking their own bank or credit union, thinking about how much they can afford before going into the dealership.
“I think (completing financing at the dealership) is a convenience factor, but I also think it’s also sometimes what drives the purchase decision. Some of these offers are so great whether it’s leasing or financing. It can really make or break the deal. Not only is it a matter of convenience, getting your transaction done all in one place, it’s also financially advantageous for people,” Caldwell went on to say.
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
The National Vehicle Leasing Association presented the Clemens-Pender Lessor of the Year Award during its recent national conference held in Tucson, Ariz.
This year’s winner was David Blassingame, who has served as the NVLA president and has been recognized with the President’s Award several times. Blassingame also has been on both the national and state boards for more than 20 years.
The Clemens-Pender Lessor of the Year Award is voted on by the NVLA executive committee. Members select the winner based on four categories of achievement: the number of nominations each candidate receives; service to the association; service to the industry; service to the local community; and the votes of the committee members themselves.
Current NVLA president Tarry Shebesta gave Blassingame the award.
The Clemens-Pender Lessor of the Year Award was established in 1977 and is the highest honor to be awarded by the association. The award was established to memorialize the two pioneers of the vehicle leasing industry, who were responsible for the formation of the early roots of the NVLA — Jack Clemens in northern California and Frank Pender in southern California.
“Frank Pender and Jack Clemens were dedicated, hard working and highly ethical participants in the vehicle leasing industry,” NVLA officials said. “Each exemplified the highest standards of professional conduct. This award is given annually to the lessor who best exemplifies the principles for which Jack Clemens and Frank Pender, the association’s founders, stood.”
The National Vehicle Leasing Association’s annual conference gets underway today with two tracks of content based on the traditional lease market as well as for attendees interested in venturing into the lease-here, pay-here space.
NVLA conference organizers also designated special sessions dedicated to accounting, credit trends, legal compliance and technology developments during the event that takes place at Westin LaPaloma Resort in Tucson, Ariz.
“This conference is an important event for vehicle leasing professionals,” said Tarry Shebesta, chief executive officer of Automobile Consumer Services who will be moderating a panel discussion.
“Changing markets, financing and technology have made staying ahead of the competition a challenge,” Shebesta continued. “This conference is designed to support maximum information exchange, promote interaction among conference delegates and provide access to industry experts on issues crucial to the leasing business.”
A presentation by Manheim chief economist Tom Webb as well as a keynote address by Joe Arpaio, who is known as “America’s toughest sheriff,” are some of other conference highlights. A few of the other experts on tap to be a part of the event include:
—Ricky Beggs, Black Book
—Alec Gutierrez, Kelley Blue Book
—Jack Pierce, Manheim
—Dan Kennedy, GM Remarketing
—Angela Shovein, Hudson Cook
—Bill Martellaro, NetDriven
—Rusty West, Market Scan
—Mike North, Katz, Sapper & Miller
—Don Jasensky, Automotive Personnel
—Bill Crawford, Wilmar Leasing
More details can be found at www.nvla.org.
Younger buyers might not be the only age demographic that could use some assistance in explaining how the vehicle financing process works.
To help baby boomers as well as consumers of all ages easily research vehicle financing in one place, Americans Well-informed on Automobile Retailing Economics (AWARE) offers multiple, easy-to-use tools on its website.
AWARE members include American Financial Services Association, National Automobile Dealers Association, National Association of Minority Automobile Dealers and American International Automobile Dealers Association, as well as members of these organizations.
“Consumers may get overwhelmed when researching vehicle financing online,” AWARE spokeswoman Susie Irvine said. “Autofinancing101.org contains free, relevant information in one place to help consumers understand the entire vehicle financing process.”
AWARE provides the following tips and resources:
• Set a budget and determine a price range based upon your needs and financial situation, and stick to it. Use the Auto Finance Calculator at www.autofinancing101.org and the AFSA Education Foundation’s Monthly Spending Plan at www.afsaef.org/monthly_spending_plan.cfm.
• Obtain a copy of your credit report and check it for errors. You can obtain a free credit report once every 12 months from each of the three nationwide credit bureaus at www.annualcreditreport.com. The information in your credit report can impact your ability to get credit and your interest rate.
• Become familiar with common vehicle finance terms, such as APR or Annual Percentage Rate, collateral, down payment, and lien. Many of these terms can be found at www.autofinancing101.org/resources/glossary.cfm.
• Understand the difference between buying and leasing a vehicle. Learn more at http://www.federalreserve.gov/pubs/leasing.
• Understand the value and price of optional products such as extended service contracts, credit insurance, or guaranteed auto protection. If you do not want these products, do not sign up for them.
• Compare annual percentage rates and other financing terms from multiple finance sources. www.afsaef.org/apply_for_financing.cfm
• Negotiate your finance arrangements and terms.
• Read the contract carefully before signing it.
Additional information in English and Spanish can be found at www.autofinancing101.org.
