U.S. lenders made more auto loans in the most recent quarter, but took more risks and charged less interest to get the business, according to a report released on Thursday by credit reporting and market information firm Experian Automotive.
Outstanding car loans increased nearly 4 percent to $658 billion at the end of December from a year earlier as borrowers financed larger amounts per car and lenders accepted lower credit scores and gave people more time to pay.
The expanded lending and easier credit came with evidence that the economic recovery is benefitting banks and borrowers alike: delinquency rates declined and the amount of loans at risk fell by nine percent, according to Experian.
"Lenders are clearly on much more solid ground than they were two or three years ago," said Melinda Zabritski, director of automotive lending at the unit of Experian plc.
With consumer demand weak for other types of loans and banks flush with deposits to lend, competition has increased as interest rates on car loans have fallen to the lowest levels since at least 2008. The average rate for loans to buy new cars was 4.52 percent in the last three months of 2011, down from 4.84 percent a year earlier. For used cars, the average rate was 8.68 percent, down from 8.71 percent.
Capital One Financial Corp and Bank of America Corp were among banks taking market share while manufacturer-based lenders at Toyota and Honda were among those that lost share, the report showed.
Lenders have adopted "more aggressive strategies" to win business, which is benefitting borrowers, Zabritski said.
Average credit scores fell for the second year in a row. For buyers of the new cars, the score was down six points last year to 761, a prime level. For used cars the score was down nine points to down 670, a subprime level. The portion of all loans made to subprime borrowers rose to 41.5 percent from 38.4 percent.
Lenders made loans for an average 110 percent of the value of new cars, which was two percentage points, and for 130 percent of the value of used cars, about the same as a year earlier. The average amount financed for new cars was $17,404 and for used cars $9,015.
Loans giving borrowers more than six years to repay surged by nearly 50 percent to 14.1 percent of the total for new cars, the report said.
Ally Financial Inc was the top lender, with 6.79 percent of the market for all vehicle loans. Ally, the former financing arm of General Motors that is 74 percent owned by the U.S. government as a result bailouts, has shifted its emphasis toward financing used cars. The company nearly doubled its share of the used car loan market to 4.25 percent, second only to Wells Fargo & Co, according to the report.
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