NEW YORK (MainStreet) -- U.S. auto consumers are taking a financial wrench out and tightening up those loan lug nuts in 2012.
TransUnion reports that rate auto loan delinquencies are down, and that the value of used cars and trade-ins may be helping car owners pay their debts down faster.
TransUnion says that consumers are doing such a great job of paying off their auto loans, it’s the lowest level ever recorded by the credit ratings company since they started tracking car and truck payments back in 1999.
It’s not like consumers are shying away from buying vehicles.
Edmunds.com reports that auto buyers should be flocking to dealers this Memorial Day Weekend. The online auto site points out that Memorial Day weekend accounted for 14.7% of all May sales in 2010 and 13.1% in 2011. Back in 2005 – before the Great Recession – that number was only 10.8%.
“Until recently, the hype surrounding Memorial Day sales was met with little more than average sales volume," says Edmunds.com senior analyst Jessica Caldwell. "But Memorial Day's performance over the last two years — combined with strong momentum in the new car market this year — has the auto industry feeling especially optimistic going into this holiday weekend.”
Consumers must be feeling optimistic, too, as TransUnion reports auto loan delinquencies are going down. Right off the bat, that piece of news has two built-in benefits:
For consumers – Paying down auto loans at a faster clip and reducing or avoiding delinquencies boosts their credit score and thus, their borrowing power.
For lenders – Fewer delinquencies gives banks and finance companies fewer reasons to restrict credit, or to only insist on the highest credit scores before granting an auto loan (which, incidentally, helps consumers, too).
TransUnion says it’s also likely that consumers, with more money in their pocket from trade-ins on used cars, are using that cash to pay down recent auto loans.
"Auto loan delinquencies continue to perform exceptionally,” says Peter Turek, automotive vice president in TransUnion's financial services business unit. “This can be attributed primarily to growing demand for both new and used vehicles and higher used vehicle values, which equates to an increase in equity for consumers. We are seeing increases in both lending and leasing across the board, along with a higher number of loans originated in the non-prime risk segments."
For the record, U.S. auto loan delinquency rates fell to 0.36% in the first quarter of 2012, down 27% from the same period in 2011. In addition, 43 states reported lower levels of auto loan delinquencies, a big improvement over the past several years and a trend that should continue across the board, TransUnion says.
"We anticipate national auto loan delinquency rates to remain relatively low for the remainder of the year, rising and decreasing with traditional seasonal patterns," Turek adds. "However, a slight increase from this record-low level would not be surprising and should not be construed as a negative event, as lenders continue to originate more loans to consumers across all credit risk levels."
That’s good news on three fronts – for the Great American Consumer, for auto lenders and for the economy overall.
And that’s not bad going into Memorial Day Weekend.