Americans borrowed more money to buy new vehicles in 2017 despite the fact that they bought fewer vehicles.
The amount of money Americans borrowed to finance the purchase of new vehicles increased again during the fourth quarter of 2017, according to new figures published by the Federal Reserve Bank of New York.
The Federal Reserve Bank of NY said the value of auto loans approved during the fourth quarter increased by $8 billion over the same period in 2016 when sales were of vehicles were relatively stronger. In addition, the value of automotive loans or debts held by lenders increased in 2017 by $64 billion to $1.22 trillion even though overall new vehicle sales dropped last year.
The percentage of delinquent auto loans also dropped in the fourth quarter to 2.3% from 2.4%, the report noted.
“Auto loan balances continued their steady rise seen since 2011. Although originations decreased slightly in the quarter, 2017 had the highest annual auto loan origination volume observed in the New York Fed data,” the bank said in its report.
(New vehicle sales hold steady in January. Click Here for the story.)
With interest rates poised to rise this year on the heels of steady economic growth, the cost of loans – and incentives used by carmakers to support loans for new vehicles – the amount of automotive-related debt is expected to increase this year.
The cost of loans the amount of automotive-related debt is expected to increase this year.
However, consumers seem confident about their personal economic prospects.
The Federal Reserve Bank of New York’s Center for Microeconomic Data said the January 2018 Survey of Consumer Expectations showed continued improvement in expectations about households’ year-ahead financial situation and credit availability as well as earnings growth. Short- and medium-term inflation expectations also fell slightly.
Perceptions of the household’s financial situation compared to a year ago, as well as one-year-ahead expectations of the household’s financial situation both improved and reached new series’ highs, with 38.7% of respondents feeling they are better off and 45.7% expecting to be better off financially, compared to 37.0% and 43.2% in December respectively.
(Click Here for more about automaker concerns for 2018 sales after a slow December.)
Credit card balances increased and flows into serious delinquency have increased since the third quarter of 2016.
However, outstanding student loan balances also increased. Student loan delinquency flows declined slightly but remain at a high level of 9.3%
Delinquency rates for student loans are likely to understate effective delinquency rates because about half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high, the bank said in its report.
The high level of student loan debt is often cited as one of the reasons younger buyers have been slow to purchase new or even used vehicles and any and kind of delinquency makes it harder to qualify for a loan.
(To see why some think auto ownership may have passed its peak, Click Here.)
The Federal Reserve Bank of New York also said mortgage balances increased substantially, and the median credit score of borrowers for new mortgages decreased slightly. The share of mortgage balances that were 90 or more days delinquent (“seriously delinquent”) continued to improve.