April 29, 2014

Rising auto loans could encourage loan sales by providing loans with shorter durations

The total value of automobile loans outstanding rose in March, and the increased supply of this type of debt could bolster loan sales.

Many financial institutions find auto debt appealing, as it represents a short duration asset (compared to mortgages) they can harness to increase income.

Auto loan debt rises year-over-year
Data contained in the latest Equifax National Consumer Credit Trends Report showed that outstanding automobile loan debt reached $874 billion last month. This figure represented a 10.3 percent gain from the same time last year. The total number of these loans also increased during the period, rising 6.1 percent to 63 million.

As a result, both of these key measures reached nine-year highs in March.

Auto loan originations rise
Auto loan originations totaled 1.8 million in January, which represented the highest figure in eight years and a 4.7 percent increase from the same month in 2013.

As a result, financial institutions issued more of these loans than credit cards and other forms of debt like home equity loans, Credit Union National Association reported.

In addition to the amount of debt outstanding moving higher, auto loan originations reached $34.3 billion in value in January 2014, according to the media outlet. This figure was 19.8 percent more than the $28.6 billion in debt outstanding that existed during the same month last year. Financial institutions issued 1.8 million of these auto loans in January 2014. This was the highest reading for this particular measure in eight years.

Market expert notes variables impacting auto lending
Amy Crews Cutts, chief economist at Equifax, chimed in on the situation, noting that the improving weather conditions might have contributed to more robust auto loan originations. The market expert also stated that an appealing environment for loans in this space could have enticed Americans.

"Despite the relatively low numbers of new and used vehicles sold in January, auto originations were up nearly 20 percent from the same time last year. This suggests that consumers are responding positively to the generous terms and greater credit availability in the auto space," she said. "Credit card and Home Equity Revolving Lines of Credit originations were also up sharply over the previous year, further signaling that not only are consumers interested in credit, but that banks are more willing to offer it."

Financial institutions interested in buying auto loans might want to speak with Garnet Capital Advisors, which has several portfolios containing this particular type of debt.