New forecasts are out that indicate cars will be the product to buy in 2013. Along with the amount estimated that consumers will borrow in car loans and the estimated very low default rates, my bet is that new car financing will be much easier to get in 2013.
TransUnion released its annual national auto loan delinquency forecast today indicating that the ratio of borrowers 60 or more days past due will remain near record-low levels throughout 2013. TransUnion also forecasts that auto debt per borrower will continue its uptrend next year, jumping from an expected $13,689 in Q4 2012 to $14,133 at the end of 2013, a sign that auto financing will continue to grow as new and used car sales increase.
The low auto loan delinquency environment has persisted even as more non-prime, higher-risk consumers carry auto loan balances. In Q3 2011, TransUnion's Industry Insights database found approximately 19.97 million borrowers with a VantageScore® credit score lower than 700 (on a scale of 501-990) carried auto loan balances. This number increased to 20.66 million in Q3 2012.
"It's a real sign that the automobile market is on solid footing that even with more non-prime consumers carrying auto loan balances, we've continued to maintain a low national auto loan delinquency rate," said Turek. "We believe this is happening partly because consumers are now valuing their auto loans even more than their credit card and mortgage loans; also lenders and dealers are putting even more emphasis on placing buyers in vehicles and loans that best fit their financial situation," said Peter Turek, automotive vice president in TransUnion's financial services business unit.
The total number of consumers carrying auto loan balances also has increased in the last year, rising from 59.27 million in Q3 2011 to 61.68 million in Q3 2012. With this rise, auto loan debt per borrower jumped from $12,902 to $13,571 in those same periods. If TransUnion's 2013 forecast holds true, auto loan debt will have increased 11 straight quarters since Q1 2011. In the 11 quarters prior to Q1 2011, auto loan debt experienced only three quarterly increases.
When you look at the forecast charts below, the anticipated changes are dramatic in loan balances.
There is a lot of demand for major new purchases that has been building up over the last few years as the economy has trickled back. The key clue that car financing will become easier as demand increases is the discovery that car loan deficiency and default rates for lower credit scores seems to be in a historical low range.
This trend for 2013 has a silver lining for consumers as well. As more people with lower credit scores will be approved for financing, the battle over rates will create competition to lower rates for even those with potentially bad credit. Meaning, it might just be cheaper to finance a new or used car purchase in 2013.