NY Fed: US auto loans soar to highest in 8 years

WASHINGTON — Auto loans jumped to the highest level in eight years this spring, fueled by a big increase in lending to risky borrowers, the Federal Reserve Bank of New York reported.

Still, loans to borrowers with weak credit, or subprime lending, make up a smaller proportion of auto loans than before the recession.

Regulators have raised concerns about the rapid increase in subprime auto loans. They could lead to more defaults, harming banks and consumers. Auto loans are also packaged into securities and sold to investors. That could amplify the impact of any rise in auto loan defaults.


This spring, the Office of the Comptroller of the Currency said ‘‘signs of increasing risk are evident.’’ It found that lenders are making larger car loans.

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As a result, the total of car loans in default has increased in the past two years.

Still, the New York Fed report stops short of recommending specific steps. On its website, economists said they would ‘‘continue to monitor’’ the issue.

Banks and other lenders issued $101 billion in new auto loans in the April-June quarter. Total outstanding auto loans rose to $905 billion.

Auto loans are the third-largest source of Americans’ debt, after mortgages and student loanseducation. Mortgage debt declined in the second quarter to $8.1 trillion, while student debt rose to $1.12 trillion. Americans have $669 million on their credit cards.


The Fed’s data show that the dollar amount of subprime auto loans — those to borrowers with credit scores below 620 — has nearly doubled since 2010. For borrowers in the two most credit-worthy categories — those with scores above 720 — auto lending has risen by about one-third.

The automakers’ financing arms account for most of the increase in subprime loans. In the second quarter, the dollar value of their subprime loans was triple that of the banks. Economists at the New York Fed said that about 2.5 percent of loans by auto financing companies have become delinquent in recent years, compared with just 1 percent of those issued by banks.

Auto lending to credit-worthy borrowers also jumped, the report said.

Associated Press