Leasing particularly appeals to car shoppers wanting to stay within a strict budget, says Melinda Zabritski, Experian’s senior director-automotive credit.
Auto-finance industry sees remarkable stability, Zabritski says.
Auto leasing, which set record lows in 2009, is now setting record highs, according to data tracker Experian Automotive.
The share of new-vehicle deliveries financed with a lease hit its highest level since the company began publicly reporting such data eight years ago, Experian says in its latest State of the Automotive Finance Market report.
In 2013’s fourth quarter, leasing represented 28.4% of new-car purchases, up from 24.8% from the previous year.
“Leasing continues to grow in popularity among car shoppers, especially those hoping to stay within a strict monthly budget,” says Melinda Zabritski, Experian’s senior director-automotive credit.
The average monthly lease payment of $420 was $51 lower than the average loan payment, she says. “That can make a big difference to consumers trying to stretch their dollar.”
Leasing has had its ups and downs since the 1990s, when it became a popular way for consumers to get behind the wheel of a new vehicle but at less of a financial commitment than if they had bought it.
Leasing peaked in 1999 with 3.7 million deliveries. Nine years later,and virtually ended their leasing programs because of major losses stemming from poor residuals on returned vehicles.
Leasing’s low point occurred in 2009, when it dropped to 1.1 million units. Since then, it has steadily grown, passing the 2 million-unit mark in 2011, hitting 2.5 million in 2012 and exceeding 3 million in 2013, according to Manheim.
Auto industry sales went from 16.2 million units in 2007 to 10.6 million in 2009 in large part because of reduced credit availability as the financial crisis worsened. Subprime borrowers were all but excluded.
But that’s changed. Financing has become easier to obtain, as evidenced by average credit scores for both new-car leases and loans decreasing. The average credit score for a new-vehicle lease dropped 16 points to 719 in the fourth quarter. The average credit score for new-vehicle loans dropped from 724 to 715.
Market share for nonprime, subprime and deep subprime new-vehicle loans also rose slightly, to 34.1%. For used vehicles, those credit tiers accounted for 62.8% of loans, down 1.6% from the same quarter in 2012.
“We are still seeing remarkable stability in the automotive finance industry, even as lenders continue to ease slightly on credit standards to provide loans and leases,” Zabritski says.
She adds: “The more credit-challenged car shoppers who need a vehicle may find that they have more financing options to choose from and can more easily shop around for the best rates and terms.”
Other fourth-quarter findings from the report:
- The average amount financed for a new vehicle was $27,430, up from $26,691 in the same-period year-ago. This marked the highest average loan amount for a new vehicle since 2008 and the first time the amount has exceeded $27,000.
- The average loan amount for a used vehicle during the quarter was $17,974, up $345 from the previous year, which was also a record-high since 2008.
- The average monthly loan payments for used vehicles rose from $348 to $352.
- Average new-vehicle interest rates were up fractionally to 4.37% for new cars and 8.71% for used vehicles.
- The average credit score for a used-vehicle loan rose from 644 to 646.