Home Business Auto Financing Offers Likely To Worsen, As Subprime Auto Lending Soars

Auto Financing Offers Likely To Worsen, As Subprime Auto Lending Soars

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After comparing financing offers from 157 lenders, the latest Auto Financing Report from Wallet Hub reveals auto financing offers are likely to worsen over the next 12 months.

Wallet Hub published its “2015 Auto Financing Report” after consulting auto industry and consumer spending experts, and notes 2015 will end with a record 17 million vehicles sold.

Car loan rates drop

According to the 2015 Auto Financing Report, thanks to an aging fleet of vehicles and drastically suppressed interest rates and improving economic conditions, 2014 witnessed 16.5 million cars being sold.

The report points out that interest rates for both new and used cars are at their lowest levels in the past few years:

The following captures car loan rates over time:

Car loan rates over time Auto Financing

Wallet Hub has compiled the report after comparing financing offers from 157 lenders – including 27 community/small banks, 47 regional banks, 10 national banks, 52 credit unions, and 21 car manufacturers. Based on its experts’ feedback, the report highlights that auto financing offers will worsen over the next 12 months.

The Wallet Hub report suggests people in the market for a new car to start exploring their search for financing with car manufacturers, whose rates are 35% below average, followed by credit unions, who charge 25% below average. The report suggests both national banks and regional banks should be considered as secondary options.

Best rates from financiers Auto Financing

According to the report, among the car manufacturers, Nissan, Toyota and Chrysler offer the lowest financing rates, while the best lease terms can be sought from Nissan, Volvo and Infiniti:

Financing terms from manufacturers Auto Financing


Auto financing offers: Fair Vs Excellent credit score

Underscoring the importance of possessing excellent credit, the Wallet Hub report highlights that it would cost roughly four-and-a-half times more to finance a car if one has fair credit versus excellent credit. This would translate to roughly $5,500 in extra interest paid over the life of a $20,000 five-year loan.

Excellent Vs Fair Credit Score Auto Financing

The Wallet Hub report also notes the largest interest rate decrease since the beginning of 2014 was observed for people with excellent credit buying used cars. The average rate for this segment declined nearly 18%.

Turning its focus on the transparency aspect, the report points out that car manufacturers continue to lack transparency when it comes to leasing offers. The report highlights that leasing offers are the most difficult type of car purchasing arrangement for consumers to understand, as they lack the equivalent of an APR that can be used for comparison purposes. While Mazda, Infiniti, BMW, Acura, Jaguar and Mini are considered the most transparent companies with a score of 6/10, all the other manufacturers received scores of either 3 or 1:

Manufacturer transparency Auto Financing

Last month, ValueWalk carried a report from Experian highlighting car dependency in the U.S. For a fifth consecutive month in December, more consumers gave up paying their credit cards and mortgages, but fewer defaulted on their car payments.

According to New York Federal Reserve, investor appetite for the long-term returns provided by high-risk subprime borrowers has fueled the growth of subprime auto lending to near-pre-recession levels. However, the wager, made by investors who purchase bonds backed by subprime auto loans, could go sour if the economy worsens and unemployment rises.

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