Monthly payments hit record high in Q2

Melinda Zabritski: "Moving forward, lenders will want to keep a close eye on car buyers' payment performance."

UPDATED: 8/30/18 4:25 pm ET - corrected

Editor's note: An earlier version of this story used an incorrect figure for total auto loans. The total auto loan balance is $1.1 trillion.?

Monthly payments for new- and used-vehicle loans hit record highs during the second quarter, but customers are still making their payments on time, Experian said Thursday.

Average new-vehicle payments increased 4.0 percent -- or $20 -- year-over-year to $525, while used-vehicle payments rose 3.6 percent -- or $13 -- from the year earlier, to $378, Experian said in its State of the Automotive Finance Market report.

Despite record-high monthly payments, 30-day delinquencies for loans and leases dropped to 2.11 percent from 2.2 percent the year earlier. Sixty-day delinquencies improved slightly to 0.64 percent, from 0.67 percent in the second quarter of 2017.

Delinquencies

"As we monitor the health of the automotive market, delinquencies are one of the most telling metrics. If this downward trend continues, it can be an encouraging sign," Melinda Zabritski, Experian's senior director of automotive financial solutions, said in a statement. "Moving forward, lenders will want to keep a close eye on car buyers' payment performance. Understanding these trends and leveraging the power of data helps lenders make the right decisions when analyzing risk."

On-time payments are improving credit scores, Zabritski told Automotive News, while declining market share for subprime and deep-subprime auto loans aided the delinquency decreases.

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As subprime and deep subprime slid below 19 percent of the $1.1 trillion in total auto loan balance, the average credit score for new-vehicle financing bumped up one point to 715. The average score for used-vehicle financing rose 3 points to 655.

Subprime decline

Share of deep-subprime originations, the lowest credit tier, shrunk to record lows, accounting for only 3.54 percent of originations.

Still, subprime consumers aren't being squeezed out of the market, Zabritski said, and despite slightly lower market shares, finance companies will continue to play a significant role in supporting subprime borrowers.

"As we see the market decrease [its] exposure to subprime in the past year or so, that should naturally decrease delinquencies," Zabritski told Automotive News. "Unfortunately, that just hasn't spilled over yet to all lender types."

Thirty-day delinquency rates rose 17 basis points for banks to 1.88 percent and climbed 6 basis points to 2.14 percent for captives. Sixty-day delinquency rates also rose for both lender types.

Average loan amounts also reached record highs last quarter. The average new-vehicle loan amount jumped $724 from a year earlier to $30,958, according to Experian, while the average used-vehicle loan amount rose $520 to $19,708.

The widening gap between new and used financing payments reached $147 in the second quarter, a $6 stretch from the year earlier, which continued to drive many prime consumers to the used market.

Even though rising interest rates and record payments ensure vehicle affordability remains a prevalent issue in auto finance for the foreseeable future, Zabritski doesn't believe costs will impact consumer preference when it comes to model type.

"They're still buying heavier vehicles, more expensive vehicles," Zabritski said. "Will there be a tipping point in new vehicles of consumers shifting into less expensive vehicles? Haven't seen it yet."

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