The good times have clearly arrived, as Americans are throwing money at cars like they’re going out of style.
Leasing has never been more popular for American car buyers, reports the Detroit Free Press, and the size of their auto loans has also hit a record high.
According to industry data compiler Experian Automotive, 33.6% of new car and truck purchases in the fourth quarter of 2015 were leases, with average auto loans reaching $29,551. The results are not surprising considering the combination of economic growth, low interest rates and cheap gas prices that spurred record vehicle sales last year.
“In order to meet their budget goals, we’ve seen more and more consumers turn to leasing and used vehicles as alternatives,” explained Melinda Zabritski, senior director of auto finance at Experian.
However, more and more buyers are discovering that their vehicle desires do not match the reality of their bank balance.
Fitch Ratings noted last month that a growing number of subprime auto loans were becoming delinquent by 60 days or more, a condition fueled in part by easy-to-access credit and falling used-car prices.
In February, the delinquency rate for subprime auto loans stood at 4.98%, surpassing the 4.87% recorded in September 2009. The percentage of loans considered likely to default also increased – 8.72 % in January – and is expected to reach 10% by the end of this year.
More than one in five Americans who take out a car loan have a low or very low credit score, which results in a higher fixed interest rate on the loan. Add to that the 72-month loan periods that many sellers offer in the interest of advertising a low monthly payment, and many economically vulnerable citizens buy cars only to find themselves unable to pay due to working conditions or health.
While the default rate trend looks worrying, Fitch says the depth of the recession has seen rates at 13%, so a crisis point is far from reached.