Auto loan growth slows in Q2

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Auto loan originations totaled 7.27 million in the second quarter, compared with 7.24 million a year earlier, TransUnion said.

In the second quarter, auto loan originations grew at the slowest pace since 2009 as the rate of new-vehicle sales gains slowed, TransUnion said this week.

Loan originations, which TransUnion reports one quarter in arrears, totaled 7.27 million in the second quarter, compared with 7.24 million a year earlier, according to the credit bureau’s Q3 Industry Insights Report released this week.

Loan originations fell with new light-vehicle sales, which dropped 0.6 percent in the second quarter to 4.5 million units, according to the Automotive News Data Center.

“Even in spite of the slowdown of sales, there are still a lot of factors to continue at least moderate growth in auto financing,” such as added jobs, healthy wage and income levels and consumer confidence, Jason Laky, senior vice president and consumer lending and automotive business leader for TransUnion, told Automotive News.

“While growth may not be at the same high rate it’s been, we will still see some moderate growth in the industry,” he said. “We have had a great run in auto sales and financing in the past seven years now. It’s unreasonable to think we will run at that high rate forever.”

Now is a good time for slow growth, Laky added. The economy is healthy, which “lessens the likelihood of a major correction later on.”

In the second quarter, nonprime originations, or loans to consumers with a credit score of 660 or lower, fell for the first time since 2010, while originations among prime plus and superprime borrowers rose.

The decline in nonprime originations may reverse as more potential borrowers gain employment, Laky said.

“The longer you get into economic expansion and expand payrolls, more people come into the work force. From a credit quality perspective, that means people are nonprime or subprime or new to credit,” he said. “A lot of them will purchase used cars as they get back into the market.”

Third-quarter high

In the third quarter, the average loan balance per borrower was $18,361, the highest since the third quarter of 2009 and up 2.3 percent from the year earlier. The number of consumers with an auto loan grew 6.2 percent to 79.3 million.

Total auto loan balances outstanding reached $1.1 trillion in the quarter, a 9 percent rise over the year earlier. Subprime balances increased the most among all credit segments, with an 11.4 percent year-over-year rise. Still, subprime balances only made up a sliver — $172 million — of the $1.1 trillion in total balances.

“Subprime consumers’ share of balances has remained steady in the last few years,” Laky said in a statement. “We’re observing increased delinquency rates, but this is a natural function of more nonprime consumers with an auto loan. We hope that steady job growth and wage gains will enable delinquencies to continue at low rates and support continued auto sales growth, though potentially at a more moderate pace than in recent years.”

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Auto loan growth slows in Q2