Outstanding auto credit in the U.S., fast approaching $1 trillion, continues to perform well, according to the latest TransUnion study of car lending trends.
The credit reporting firm announced that the delinquency rate on auto loans—the ratio of borrowers who are 60 or more days past-due—fell to the lowest level in two years in the second quarter of 2015. The auto loan delinquency rate dropped to 0.95%, from 0.98% in the second quarter of 2014. This level was lowest since 2013’s second quarter, when delinquencies fell to 0.86%.
Opposite ends of the spectrum
Subprime borrowers, while understandably reporting higher delinquency rates, also showed improvement. Delinquency among these borrowers fell to 4.98% in the second quarter, from 5.09% a year earlier and 5.19% in the first quarter of 2015. Currently about one in five car borrowers—18%, precisely—are graded subprime, according to TransUnion figures. The company noted that when the country began coming out of the recession in the third quarter of 2009, subprime borrowers represented 23.7% of auto borrowers.
While the subprime percentage is lower, subprime borrowing is growing overall, at present. TransUnion believes lenders are doing so prudently. Jason Laky, senior vice-president and automotive business leader, said in an interview that the majority of the growth in subprime is occurring among independent auto lenders, not insured banks and credit unions.
Subprime borrowers are defined as those with VantageScore 3.0 credit scores under 601.
At the other end of the consumer credit spectrum are so-called “super-prime” borrowers, those with scores of 780 or more. In the second quarter the share of auto loans held by these borrowers to 23.3%, up 8.2% from the year before.
Debt growth rates ease, but millennials borrowing more
The level of debt per borrower grew in the second quarter, but at a more moderate level for all types of borrowers. Laky said this was in line with a gradual slowdown in growth over the last few years. TransUnion believes that demand became pent up during the Great Recession and that that bulge in demand has been gradually dissipating.
Part of that bulge, but one that will grow as they mature, are the millennials. The company’s study found that consumers under 30 years old represent an increasing portion of the auto credit market. Almost 831,000 more consumers in this age group had auto loans in the second quarter than in the second quarter of 2014. However, delinquency rates among the group remained stable, at 1.28% in the second quarter of 2015 versus the year before.
Among these borrowers, the average balance is up somewhat, rising to $15,200 in the second quarter, versus $14,778 in the second quarter 2014.
Overall, “as long as the economy remains strong, delinquencies will remain low,” said Laky. Even if the economy weakens, past TransUnion research indicates that consumers will try to remain current on their auto debt, as they need wheels to get to work.