According to Experian Automotive’s “State of the Automotive Finance Market” report, the total loan dollar amount for auto loan balances is up a staggering 11.7 percent from 2013. BestRide.com has 5 tips to help you limit your auto loan debt.
The total dollar amount in automotive loan balances calculated by the credit rating bureau’s automotive division is $839.1 billion.
While still remaining at historic lows, Experian Automotive’s 60-day loan delinquencies increased by 7 percent to 0.62 percent in the second quarter of 2014 from 0.58 percent at the same time last year
30-day delinquencies also increased, rising from 2.38 to 2.39 percent.
“The rosy glow of perfect payment performance in the automotive space is beginning to tarnish,” said Melinda Zabritski, senior director of automotive finance for Experian Automotive. “We’re starting to see a slight uptick in the number of consumers struggling to make their automotive payments on time; however, we have to keep in mind that these percentages are still extremely low. We’ll want to keep an eye on how consumers pay their bills in the coming months, as it may dictate the availability of credit in the future.”
Other findings from the study include:
- The overall automotive repossession rate saw a significant increase in the second quarter of 2014, jumping more than 70 percent to 0.62 percent from a year earlier
- Finance companies were the only lender type to see a year-over-year increase in repossession rates, rising from 1.13 percent in Q2 2013 to 2.75 percent in Q2 2014
- All lender types experienced growth in year-over-year quarterly loan volume, with banks up by $31 billion, credit unions up by $25 billion, finance companies up by $24 billion and captive finance companies up by $9 billion
- The average charge-off amount in Q2 2014 was $8,149, up $932 from the previous year
If you’re in the market to purchase a new or used car, there are five things you need to know before you finance:
- Get the best financing for you: The manufacturer may have a super-low-interest rate, but it might only be available for those with gold-plated credit ratings. If you don’t qualify, the manufacturer’s rate could jump substantially. Work with your dealer, because they often have relationships with local lenders that can actually beat the manufacturer’s rate.
- Know your credit score: There’s nothing worse than finding out that you don’t qualify for the zero-percent financing a manufacturer is offering for a five year loan. It adds significantly to the cost of purchasing a new car. By obtaining your credit rating through the three major credit rating bureaus (Experian, Equifax and TransUnion), you’re in a much better position to understand what loans are available to you.
- Get pre-approved for financing: Pre-approval works just the same for purchasing a car as it does for purchasing a house. You’re walking into the negotiation with an understanding of just how much you’ll be on the hook for, and how much buying power you actually have. From there, a dealer may be able to beat the terms of your pre-approved loan.
- Pay more every month: Not many people have the average price of a new car — $32,086 — sitting around in a savings account, so financing a car is a fact of American life. But what you might have is the $44 per month you ordinarily spend on a Starbucks Venti coffee every day. Applying that $44 per month to the average $18,258 Experian found that used car buyers finance in the United States subtracts an amazing eight payments from a five year loan at a conservative 1.95% finance rate, and save $115.78 in finance charges.
- Deferred finance plans: “Zero down, zero interest, zero payments for a year” might be the kind of offers that seem hard to refuse, but carefully understand the consequences before you sign on the bottom line. Deferring payments just puts off the inevitable. If you can figure a way to pay off that loan in the year you’re deferring payments, they’re a great deal, but most people will just end up making monthly payments for the full term of the loan, only they’ll be doing it on essentially a one-year-old used car instead of a new one.