Auto loan delinquencies have steadily risen throughout the year, giving many financing and insurance specialists the impression that car buyers are struggling to navigate today’s economic headwinds. However, to the surprise of many, dealers have continued to see strong sales in 2023, seemingly contradicting the idea that consumers are facing challenges.
To take a deeper look at the actual state of consumer finances and how these have impacted auto loan trends, Melinda Zabritski, senior director of solutions consulting at Experian Automotive, joins Jim Fitzpatrick on CBT Now. Zabritski is a veteran marketing and F&I analyst, able to provide simple and valuable insights on complicated topics. Her resume includes leadership roles at some of the country’s top credit reporting agencies.
1. Car prices and interest rates have increased substantially in 2023. While this would ordinarily drive auto loan term lengths higher, the average term has decreased in recent months thanks to improved incentives.
2. Monthly car payments have continued to increase in the third quarter due to increasing interest. Average rates, even for buyers with strong credit, range from 7% to 8%.
3. Consumers have shown a willingness to take shorter auto loan terms at the cost of higher rates. Although 72-month terms are still the norm, the percentage of 48-month and 60-month loans has started to rise.
4. Consumer credit scores have continued to rise throughout the year. New vehicle buyers average in the mid-700 range, while used vehicle buyers average in the high-600 range.
5. Although some financing metrics indicate high levels consumer resilience, others are less positive. Auto loan delinquencies are on the rise as monthly payments and interest rates continue to put more pressure on car buyer finances.
"The positive...from more of a financing standpoint, is while the values are still high, the charge-off rates are actually decreasing. So repossessions are up some, yes, delinquencies are up, but with values being high, if a lender has to repo a vehicle, it's garnering more on the auction than what we would see historically. So the charge-offs are low, which does bring down that consumer deficiency balance." — Melinda Zabritski