Average Bank Auto Loan Rates Dip as Delinquencies for These Contracts Rise

January 09, 2013

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WASHINGTON, D.C. — As the Federal Reserve determined the average interest rates on new-vehicle loans from commercial banks ticked to the lowest point in recent memory, the American Bankers Association's latest Consumer Credit Delinquency Bulletin showed how these deals are turning negative at a slightly faster clip.

The association found that direct auto loan delinquencies rose year-over-year during the third quarter from 0.92 percent to 0.95 percent. ABA defines direct auto loans as contracts arranged directly through a bank.

Meanwhile, the Fed found that the average interest rate for a 48-month, new-vehicle contract originated by banks during November stood at 4.82 percent, the lowest reading of 2012.

To put that level into perspective, here are the year-end averages federal officials discovered for the previous five years:

—2011: 5.73 percent
—2010: 6.21 percent
—2009: 6.72 percent
—2008: 7.02 percent
—2007: 7.77 percent

Auto loan performance wasn't all negative, according to ABA's bulletin. In fact, indirect auto loan delinquencies fell year-over-year during the third quarter from 2.23 percent to 2.08 percent. The association classifies indirect loans as contracts arranged through a third party such as a dealer.

The performance indirect auto loans helped the bulletin's composite ratio, which tracks delinquencies in eight closed-end installment loan categories, to fall 8 basis points to 2.16 percent of all accounts in the third quarter, below the 15-year average of 2.40 percent.

The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

Bank card delinquencies dropped to an 18-year low as "consumers strengthened their financial base amid economic uncertainty," the ABA said.

During the third quarter, bank card delinquencies dropped to their lowest levels since 1994, falling 18 basis points to 2.75 percent of all accounts and well below the 15-year average of 3.89 percent.

ABA chief economist James Chessen attributed the improvement to consumers' ongoing efforts to better manage their finances.

"Consumers are paying close attention to their finances as they continue to pay down debt in an uncertain economy," Chessen said. "The conservative approach consumers have taken to credit over the last several years has allowed them to better manage their debt and better position themselves for the future."

While Chessen found the continued decline encouraging, he noted the absence of a comprehensive improvement across categories — something that hasn't been seen since the first quarter of 2012.

"The lack of broad-based improvement remains a cause for concern," Chessen said. "Some categories have reached historical lows leaving little room for improvement. In addition, slow job growth, continued uncertainty and falling consumer confidence could signal rising delinquencies in the year ahead."

The expiration of the payroll tax cut will also put increased pressure on consumers.

"Many consumers will see their real disposable income take a significant hit in the New Year," Chessen said. "Changes in payroll withholding will decrease disposable income, reducing retail sales and making it more difficult for some people to meet their financial obligations."

Chessen also noted that delinquencies in two home-related loan categories rose in the third quarter.

"While there are strong signs that the housing market has turned a corner, it will take several quarters before delinquency numbers begin to reflect those trends," Chessen said.

Chessen believes that consumer confidence will play a critical role in our economy going forward.

"Confidence has already fallen sharply and many consumers have responded by closing their wallets," Chessen said.

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