New-car rates jump to near-decade high as delinquencies remain stable

ATLANTA and SANTA MONICA, Calif. - 

As Edmunds spotted interest rates on new-vehicle financing climbing to the highest level in nearly a decade, the latest auto finance data from Equifax showed severe delinquency edged up only slightly in February.

According to information shared this week with SubPrime Auto Finance News, Equifax determined the severe delinquency rate — the share of balances 60 days or more past due — stood at 1.13 percent in February, up just 5 basis points from the year-earlier reading of 1.08 percent.

Equifax also reported that auto write-offs registered at 24.5 basis points in February, which is down from 24.9 basis points a year ago.

Equifax tabulated that finance companies originated 28.10 million vehicle installment contracts and leases — totaling $611.3 billion — in 2017, representing a 3.5-percent decrease in total new accounts and a 1.1-percent decline in balances over the prior year.

Equifax deputy chief economist Gunnar Blix pointed to the change reflecting a market shift from new to used vehicles.

Blix also mentioned that according to Equifax’s full-year data, just 9.2 percent of vehicle leases were issued to consumers with a subprime credit score, marking the smallest subprime share since 2011.

When looking at the data as a while, especially with delinquencies remaining relatively stable, Blix said, “Consumers benefit from these trends as well.

“Understanding how auto markets are shifting and learning which credit markets have favorable terms can help them make more informed personal decisions,” he went on to say.

March financing trends

Edmunds passed along information to SubPrime Auto Finance News this week, as well, indicating interest rates on new-vehicle loans will hit their highest level since 2009 in March. The projection would mark the second straight month of sharp rate increases.

According to the analysts at Edmunds, the annual percentage rate (APR) on financed new vehicles averaged 5.7 percent in March — compared to an average of 5.2 percent in February and 5 percent in January. This compares to 5 percent in March 2017 and 4.4 percent in March 2013.

Edmunds experts point to a significant decrease in zero-percent loans as a primary driver for this rise in the average. The percentage of zero-percent loans will drop to 7.4 percent in March compared to 11.4 percent in 2017, which Edmunds attributes to larger automakers shifting to different incentive structures to address slowing sales.

“Some of the largest volume brands like Chevrolet, Ford, Nissan and Toyota are demonstrating the largest drop in zero-percent loans year-over-year,” said Jessica Caldwell, executive director of industry analysis at Edmunds.

“This goes to show how the cost of lending has become increasingly more pricey, and zero-percent financing, while still a desirable incentive, no longer adds the same wow factor for consumers like it used to,” Caldwell continued.

Edmunds experts also point to a significant decrease in the number of installment in the 2- to 4-percent APR bracket and an increase in the 4- to 7-percent range as contributors to the spike in the average APR in March.

Analysts determined the number of 2- to 4-percent contracts accounted for 8.9 percent of the market, compared to 14.1 percent a year ago, and the percentage of 4 to 7 percent loans accounted for 34.5 percent of installment contracts compared to 27.6 percent last March, indicating that buyers are continuing to land in higher brackets than they previously would have.

“The high interest rates right now may catch a lot of car shoppers off guard, especially if they qualified for a lower rate the last time they visited the dealership,” Caldwell said.

New-Car Finance Data





 

March 2018

March 2017

March 2013

Term

69.5

69.0

65.7

Monthly Payment

$527

$509

$461

Amount Financed

$31,020

$30,271

$26,533

APR

5.7

5.0

4.4

Down Payment

$3,962

$3,789

$3,584

 

Used-Car Finance Data





 

March 2018

March 2017

March 2013

Term

67.2

67.0

63.8

Monthly Payment

$393

$382

$361

Amount Financed

$21,202

$20,832

$18,867

APR

8.7

8.3

8.4

Down Payment

$2,625

$2,507

$2,364

Source: Edmunds

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