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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: Jan 7, 2013

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Cars will be a strong investment in 2013, according to several industry reports.

TransUnion and the American Bankers Association both issued recent reports on the auto lending industry that covered outstanding loan balances, delinquencies and lending companies’ openness to subprime borrowers.

According to a recent report from TransUnion, the number of consumers with remaining balances on their auto loans has increased in the past year. In Q3 2011, there were $59.27 million in outstanding car loan balances, which increased to $61.68 million in Q3 2012.

Auto loan debt, per borrower, increased from $12,902 to $13,571 in the same periods. This number has increased since Q1 of 2011. For 2013, TransUnion predicts it will grow to $14,133 by the fourth quarter.

In addition, more subprime borrowers are being approved for auto loans. In Q3 2011, about 19.97 million borrowers with credit scores of less than 700 carried auto loan balances. In Q3 2012, that number increased to 20.66 million.

“Consumers willing to take on more debt is a reflection of their confidence in their ability to manage that debt,” Peter Turek, automotive vice president at TransUnion’s financial services business unit, told loans.org. “At a high level, increase in auto debt means that consumers have confidence in the economy and their employment situation and ability to pay the auto debt.”

Regardless of confidence, consumer’s ability to repay is paramount.

“In the end, any kind of additional debt is only good if consumers operate clearly within their budget,” Turek said.

Even though more sub-prime consumers are carrying loan balances, TransUnion reported a low national auto loan delinquency rate.

Turek said this is a sign that the auto industry is on solid ground.

“Consumers are striving to manage all their debts as we continue to emerge from the recent recession,” he said.

A TransUnion study revealed that participants paid their car loans before their credit card or mortgage payments.

“We believe this is happening partly because consumers are now valuing their auto loans even more than their credit card and mortgage loans; also lenders and dealers are putting even more emphasis on placing buyers in vehicles and loans that best fit their financial situation,” Turek said in a release.

For other industry groups, consumers were less faithful with repayment.

The American Bankers Association (ABA) reports that auto loan delinquencies have grown. According to the ABA, direct car loan delinquencies rose from 0.92 percent to 0.95 percent in Q3 of 2012.

Keith Leggett, ABA senior economist and vice president, told loans.org that the increase is minor and does not reflect a major change from outside factors.

He said the fact that consumers are increasing loan balances in 2013 is good for the economy.

“It reflects that people are doing a better job at managing their finances,” Leggett said to loans.org. “When people are struggling or delinquent on their debts, that really amounts to a debt weight loss to society.”

James Chessen, ABA’s chief economist, agrees with Leggett.

“Consumers are paying close attention to their finances as they continue to pay down debt in an uncertain economy,” Chessen said in a press release.

In comparison to the automobile lending industry, other loan delinquencies such as personal lending and property improvement loans fell.

“Some categories have reached historical lows leaving little room for improvement. In addition, slow job growth, continued uncertainty and falling consumer confidence could signal rising delinquencies in the year ahead,” Chessen said.

Regardless if a consumer has good or bad credit, Turek told loans.org that the most important element is education.

“The most positive impact a consumer can have when buying a car is to educate themselves.”