FORT WORTH, Texas — Loan terms are getting longer and scores are getting lower, according to data from a recent survey from the National Automotive Finance Association. The survey of subprime lenders incorporated traditional data along with new research from Experian and consumer insight from FactorTrust.
The survey was conducted between February and April 2014. Data for calendar years 2012 and 2013 was collected.
Among the key findings:
- Average contract terms at originations increased from 69 months in 2012 to 70 months in 2013 for new vehicles and from 58 months to 60 months for used vehicles
- Origination scores decreased by 2% from 537.6 in 2012 to 536.6 in 2013
- Average year-over-year amounts getting financed was up 2.5% from $14,300 to $14,600
- 30-day delinquency rates spiked up 20.1% from 5.4% to 6.4%
Meanwhile, YoY average annual net charge off rates were up by 17.4%.
George Halloran, Auto Finance program director at BenchMark Consulting International Halloran said two thirds of the participants in the NAF survey experienced a decline in return and a very small percentage had a negative return. Several participants maintained or improved their profitability, he said, citing the survey.
There was no change for the cost of funds, which remained at 3.8%. But loan loss allowance was up by 38 basis points, year over year.
The survey showed that key trends lines indicate that improved collection effectiveness will continue, but lenders should expect lower results. Credit risk appetite is still expanding, but only slightly more than earlier. Risk managers are improving scorecard predictability and the use of other tools. Credit department efficiency is also improving, which means faster auto decisions, paperless processing, as well as better models and tools. For now too, funding availability is stable.
Non-captive OEM alliances are expanding, but captives continue to gain share.
But perhaps the biggest news in the survey is the impact younger consumers will have on auto finance.
“Gen Y thinks differently. They’re social — they like things to feel social. When they want it, they want it. An example, if they want to wake up at 2 am and have some Snickers and a Red Bull, they may want to even buy a car. That information should be readily available,” said Halloran.
