Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 5, 2013

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New vehicle leasing rose 12.5 percent during this last fiscal quarter, reaching a record high.

Experian Automotive found that leasing represented a high of 27.5 percent of all new vehicles financed in Q1 2013. This was a significant increase from 24.4 percent in Q1 2012. The average monthly leasing payment on a new vehicle in Q1 2013 was $459, a reduction from Q1 2012 when it was $462.

Davis Speight, general manager at Starwood Motors, told that the Experian findings are a great signifier for consumers, local businesses and the overall economy. He said the auto lending industry has improved because there is more trust and confidence in the auto business as a whole.

“There are more lenders that are getting back into the leasing world,” Speight said.

In addition to more lending options, banks are setting residuals on auto leases that are more realistic. If the residual is estimated properly, auto dealers can break even or make a profit off the sale of a vehicle after its lease ends.

Speight said the increase in the total number of leased vehicle is good for business.

“It offers people a way to get into a vehicle that they traditionally may have not considered,” he said.

Melinda Zabritski, senior director of Experian Automotive Credit, agrees with Speight. She said that consumers shop for vehicles based on their budgetary limits and auto leasing is seen as a way to reduce monthly payments. She said auto loan lenders have seen the market recover, and leasing has returned as one element of a larger lending strategy.

Beyond auto leasing, purchasing a new or used vehicle is another option for consumers. The report discovered several positive trends for auto loans.

First, auto loan term lengths have extended from 64 months to 65 months in the past year.

Secondly, interest rates on auto loans have reduced from 4.6 percent in Q1 2012 to 4.5 percent in Q1 2013, which helps to keep consumer’s monthly payments low.

Additionally, the average auto loan amounts for new cars increased by an average of $628, reaching an overall average of $26,648 this quarter. Loans for used vehicles also increased, rising by an average of $461, resulting in an overall average of $17,532.

A final sign of the improving auto economy is lending institutions’ acceptance of lower credit scores. Auto loans made to consumers without prime credit, such as nonprime, subprime and deep subprime, increased to 45.2 percent. This was a jump from 44.4 percent seen in Q1 2012.

The average credit score for a new auto loan dropped from 760 last year to 755. A similar trend occurred for used vehicles, where average credit scores decreased from 659 to 657.

Speight said that lenders are likely approving more subprime borrowers because they noticed that they were missing business opportunities. He said that lending institutions are giving more consumers an opportunity to re-establish themselves.

“What the banks are doing is they are opening up their eyes to those people that went through those hardships,” he said.