Low interest rates and higher subprime lending are the primary factors driving a faster increase in the number of auto loans and leases at auto finance companies, compared to banks, according to Equifax.
Combined loan and lease accounts at finance companies, defined as automaker captive finance companies and independent finance companies, jumped 9.7% to 33.9 million compared with the first eight months of 2014. Accounts at banks, including credit unions, grew 5.7% to 33 million. According to Equifax, through August, banks had about one million lease accounts, while finance companies had about seven million.
Overall, the number of auto loan and lease accounts increased 8.7% through August, reaching 75 million accounts. Outstanding auto loan and lease balances rose 11.1% to $1.05 trillion, according to Equifax. At auto finance companies, combined auto loan and lease balances increased 11.3% to $482.1 billion. At banks, the balances climbed 10.2% to $494.5 billion.
What Do Leasing Levels Say About Industry Stability?
As new vehicle prices go up, consumers lean toward leasing in greater numbers. For more than a year, leasing has accounted for approximately 25% of new vehicle sales, according to Experian Automotive. These low-mileage, younger off-lease vehicles will hit the used vehicle market in the next few years and cause a decline in used vehicle prices. As a result, new vehicles will have to be priced lower to compete.
Leasing brings stability to the market and creates a steady stream of consumers coming into showrooms. While the average loan term grows to 67 months, the average lease term remains at 36 months.