U.S. sales of new cars jumped in March as auto lenders lowered their interest rates and loosened their loan credit standards.
Total new vehicle sales rose 3.4 percent compared to the previous year to 1.5 million last month, according to Autodata. They hit an annualized pace of 15.3 million, up from 14.1 million in March 2012.
“The industry is being fueled by cars, credit and confidence,” says Bob Carter, a Toyota senior vice president in a USAToday article. “People are back in the mood to buy a car.”
That statement is backed up by the latest data from Experian Automotive, which found that lenders are letting credit flow more freely these days. During the fourth quarter of 2012 the average credit score for new-car loan applicants was 755, down by six points from the year before. That’s also down 20 points since the 2009 fourth quarter peak. Plus, car buyers are borrowing more money. The average new-car loan during the fourth quarter was $26,691, up $272 from 2011?s fourth quarter.
As credit standards have loosened, interest rates have fallen. During the fourth quarter, Experian found, new-car buyers received an average interest rate of 4.36 percent on their loans, compared with 4.52 percent from a year earlier.
These factors have combined to encourage lenders to make longer term loans. New-car buyers had loans with an average of 65-month loans in the fourth quarter, up from 63 months during the third quarter.
“While longer loan terms have traditionally been a cause for concern to the industry due to the risk of purchase cycle extension, it is not necessarily as daunting as it may seem.” said .D. Power and Associates senior vice president of global automotive operations John Humphrey in a Washington Post piece. “The longer loans are being offset by more leasing and the low interest environment, which means that consumers are able to put more of their monthly payment towards their loan principal rather than interest fees.”
All of this is primarily the result of more confidence in the jobs scene and the overall economy.
About Amber NelsonAmber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.
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