Tuesday, November 7, 2017

CFPB Flags Risk Associated by Longer Maturity Car Loans

A study by the Consumer Financial Protection Bureau (CFPB) flags the higher risk posed by longer term auto loans.

The study noted that auto loans with longer maturities continue to expand market share, despite a cooling in the auto finance market. According to the CFPB, loans with maturities of six years or longer accounted for 42 percent of the market in 2017 year-to-date, up from 26 percent in 2009.

Six-year auto loans are the most common term used to finance auto loans.

Longer-maturity loans may pose greater risks to consumers. These loans are more likely to be used for larger loan amounts and by borrowers with lower credit scores. The average credit score for a borrower for taking out a six-year auto loans was 674 -- 39 points below the credit score for borrowers taking out a five-year auto loans. And given that the average length of U.S. car ownership is 6.5 years, longer loan maturities may mean borrowers are paying off loans for cars they no longer drive.

The dividing line in loan quality between five-year loans and six-year loans was especially stark, with default rates for the latter roughly double the former at comparable points since origination. For example, a six-year car loan made in 2014 had a cumulative default rate of over 5 percent two years after origination, but a similar five-year loan saw a default rate of just over 2.5 percent.

Read the report.
Posted by at
Labels: , ,

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)
 

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.