Stories of consumers with bad credit getting approved for low-interest auto loans are becoming more common now. Obtaining credit is easy and consumers are more willing to take on debts.
The February report of the credit information agency TransUnion showed that U.S. consumers have been taking out auto loans in increasing amounts for three consecutive years now. The average auto loan balance per borrower is $16,769 in the last quarter of 2013. It hit low in 2010 at $14,764. It has been increasing since then.
But consumers are taking out not just bigger auto loans but also more.
The loan volume increased from 57 million to 60.5 million in 2013. That happened when auto sales also increased by 7.6 percent to 15.6 million. It is a 50-percent growth from just 10.4 million sales in 2009.
One reason for this trend is the availability of lower interest rates which make auto loans less expensive and more affordable.
As of this writing, the average interest rate for a 60-month new auto loan is 4.24 percent according to Bankrate. Investopedia explained that the same loan had 4.09 percent average interest rate. It is lower than today’s rate. But in 2009, the loan cost nearly 7 percent.
Americans also see the economy positively now.
In the last quarter of 2013, the unemployment rate declined from 7.9 percent in 2012 to 6.7 percent. And according to the University of Michigan and Thomson Reuters, the U.S. consumer sentiment in February is 81.6, higher than the 71.0 average. Consumers are more likely to spend when the sentiment is high.
Interestingly, TransUnion found that fewer consumers were delinquent in the last quarter of 2013 even if they have taken out larger auto loans. The delinquency rate slightly increased to 1.14 percent from 1.09 percent last year. But that is still lower than 1.3 percent, the average for fourth-quarter rates since 2007.
One possible reason is the fewer number of consumers with subprime credit. But today’s subprime borrowers seem to be struggling with their auto loans. The delinquency rate of the group went up from 5.73 percent in 2012 to 6.12 percent year over year.
Investopedia concludes that these days are good for taking out auto loans. But it also reminds consumers to ensure their financial security by not taking on too much debt.