When it comes to car lending, it’s a market that favors buyers.
Borrowers are being given more time to repay their loans — In 2012, terms of average new car loans increased to 64 months and used car loans have increased to 60 months, according to Experian data. Nearly 10% of used car loans are for 72 months or more.
At the same time, loan amounts are growing — up more than $1000 in the first half of 2012 compared to 2011. Used car loans are up almost $800.
Additionally, subprime borrowers are having an easier time finding financing, with loans to those borrowers increasing 14% in the past quarter compared to last year. The average credit score for new vehicle loans dropped to 753 for new and 662 for used in the second quarter of this year — both down 9 points from the second quarter of 2011.
The impact of these trends on delinquencies remains to be seen, but with history as our guide, they will tick up. Longer terms make it more likely that borrowers become “upside down” on auto loans. Higher loan amounts increase repayment pressures. And subprime lending comes with its own set of payment challenges.
Because delinquencies and lack of insurance go hand in hand, many repossessions have uninsured damage. In this environment, the need for collateral protection insurance is critical. CPI programs not only provide coverage for uninsured damage to loan collateral, but also offer options for hard and soft dollar costs such as towing coverage, mechanics lien coverage, and even ‘skip’ coverage for when vehicles cannot be recovered.