Insider Q&A: Experian's Zabritski on the surge in auto loans

Staff Writer
Columbus CEO

DETROIT (AP) — Americans are borrowing a record amount to finance their SUV habit.

With gas prices low, consumers are buying more SUVs and trucks and loading them up with new technology, like backup cameras and automatic braking. As a result, the average new-car loan approached $30,000 in the fourth quarter of last year, setting a record, according to Experian Automotive.

To lessen the blow, more buyers are opting for leases, which offer lower monthly payments. Leasing — once confined mainly to the luxury market — made up more than one-third of new financing in the fourth quarter, Experian says. The Honda Civic was the most-leased new car.

Buyers are also opting for longer loans to string out their payments. Longer-term loans of 73 to 84 months saw the fastest rate of growth for both new and used car buyers. The average monthly payment is now $493.

Melinda Zabritski, senior director of automotive credit for Experian Automotive, discusses the trends. Her answers have been edited for length and clarity.

Q. What would it take to reverse the current trends?

A. In addition to overall price increases, finance amounts are in part reflective of the types of vehicles consumers are purchasing. As entry-level SUVs and full-size pickup trucks increased market share over economy vehicles, these more expensive vehicles helped drive up the average amount financed. If we see an increase in less expensive vehicles, it could help drive down amounts which could in turn impact monthly payments.

Q. Do you expect leasing to stay hot?

A. If anything, leasing will become more attractive as interest rates rise and increase loan payments.

Q. The gap between new and used vehicle monthly payments reached an all-time high of $134 in the fourth quarter. Why is that gap widening?

A. One of the impacts of the growing lease market is a surge in late-model off-lease vehicles returning to market. This is causing the inventory of available used vehicles to grow, which in turn affects the wholesale markets. In other words, the more late-model vehicles available, the lower the price at auction. This helps make used vehicles more affordable, which in turn reduces the finance amount and associated payment.

Q. The average new-car loan term is now 67 months, up from 63 months four years ago. What are the implications for the auto industry if people are taking longer and longer to pay off their vehicles?

It helps drive vehicle sales, as it makes the monthly payment more affordable. That, in turn, can help consumers stay current on their automotive loans. But, if the loan goes bad, it could keep consumers out of the market longer, since the consumer has negative equity which would require them to hold on to the vehicle longer.

Q. Sixty-day auto loan delinquencies edged up in the fourth quarter. Does that mean credit standards have gotten too loose?

A. Not necessarily. Lenders plan for a certain level of delinquency. Various credit ranges carry associated estimated loss rates. For lenders who buy deeper, they plan for the anticipated losses associated with those loans.