Loans Longer, Stronger as Delinquencies Fall

The auto financing scene has been marked by not only longer loans but stronger ones, as delinquency rates have continued to fall.

These are the key findings of the annual survey on automotive finance of the Consumers Bankers Assn. (CBA).

The survey noted that contracts of 60 months or more rose in 2004 to 45% of new vehicle loans, from 40% in 2003 and only 21% in 2000.

Over the same time span, loan delinquencies declined to 1.0% from 1.16% in 2004 and 2.5% in 2002.

“On-time payments seem to be a trend,” says General Motors Acceptance Corp. spokeswoman Joanne Krell. “We see that as indicative of a strong quality portfolio.”

The move towards longer-term loans has been evident in the past few years, says the National Automobile Dealers Assn. Chief Economist Paul Taylor, attributing the trend to low-interest rates and “more durable vehicles.”

Rising rates could prompt lenders to reduce loan durations, Taylor added, although in some western markets, loans of up to seven or eight years on new vehicles have been offered.

The CBA study also found that vehicle leasing rose last year. The 49 lender participants, including five captive lenders, said their average rate of leasing originations increased in 2004 by 5% from 2003, a trend which Taylor said was continuing this year.

The average new-vehicle loan in 2004 fell 1.9% to $22,368, while the average used-vehicle loan declined 3.4% to $15,961.