Consumers took out $101 billion in new auto loans during the second quarter, the most in any three-month period since 2006, but total household debt held steady, the Federal Reserve Bank of New York said Thursday.
Outstanding balances on auto loans, including leases, surged by $30 billion to $905 billion, the New York Fed said in its quarterly report on household debt and credit. After 13 straight quarterly increases, households auto loan debt is more than 20% higher than in late 2011, the Feds data show.
FULL TEXT: NY Feds Household Debt and Credit Report
NY FED BLOG POST: A look under the hood of subprime auto lending
Overall household debt rose 1% in that time, reaching $11.63 trillion in the second quarter, according to the New York Fed.
The data support other recent reports showing a boom in auto loans to subprime borrowers with the riskiest credit profiles. That trend has alarmed consumer advocates and banking regulators, bringing comparisons to the lax lending practices in home mortgages almost 10 years ago, which helped cause the Great Recession.
Relatively easy-to-get credit for car buyers has helped power auto sales to pre-recession levels, a recovery thats still missing in the housing market, where anecdotal evidence indicates loan standards remain tight for many home buyers.
Since bottoming out in late 2009, auto loan balances have risen for all kinds of borrowers whose credit scores span the range from poor to excellent, but the growth has been most pronounced for those at the low end, New York Fed economists said in the report.
Thats partly because lenders sharply reduced credit to the riskiest borrowers in 2009 and 2010, so lending growth in that sector had the most room to improve as the economic recovery has unfolded the past five years.
Examining anonymous borrower data from credit bureau Equifax, the New York Fed found that the dollar value of new auto loans to people with credit scores in or near the subprime category has roughly doubled since 2009, while loan originations for other credit score groups have risen by only about half.
The jump in loan volume among risky borrowers reflects an increase in the average size of loans more than an increase in the number of loans, according to the report.
Subprime borrowers are those with credit scores below 620.
Based on dollar volume, the share of auto loans to those borrowers, 22% at the end of last year, has risen slightly since 2010. Its still below the 25% to 30% range seen before 2007 when the recession began, the Fed said.
Much of the growth in overall auto loan debt has come from the most credit-worthy borrowers. A recent report by Moodys Analytics said outstanding balances on auto loans and leases to borrowers with credit scores over 700 fell only slightly during the recession and are now almost 30% above where they were in 2007.
One reason some economists are not alarmed by the increase in auto loan debt is that borrowers are keeping up payments. The rate of seriously delinquent auto loans is holding steady at about a 3% rate, according to the New York Fed.
Households are also carrying far less debt of all kinds than they once did, leaving room for many borrowers to carry car payments. Overall household debt is 8.2% below the peak in 2008s third quarter, the New York Fed said.
Its report also found:
o Total household debt in the second quarter, at $11.63 trillion, was down 0.2% from the previous quarter.
o Mortgage debt fell $69 billion to $8.09 trillion.
o Student loan debt rose $7 billion to $1.12 trillion.
o Credit card debt rose $10 billion to $669 billion.
o Home-equity lines of credit fell by $5 billion to $521 billion.