Auto Leasing Accounts for Over One-Quarter of Car Finances
Apply for a Loan
Secured with SHA-256 Encryption
UPDATED: Jun 5, 2013
Advertiser Disclosure: We strive to help you make confident loan decisions. Comparison shopping should be easy. We are not affiliated with any one loan provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about loans. Our goal is to be an objective, third-party resource for everything loan related. We update our site regularly, and all content is reviewed by experts.
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 loans.org 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.