New Car Buying Boost Leads to Consumer Borrowing, Auto Loan Increase

By Liz Opsitnik
Tuesday, Mar 08 2011 11:47

A recent increase in new vehicle purchases has led to an increase in consumers who need an auto loan to buy that new car, which is good news for auto lenders.

The Federal Reserve released data Monday showing that total consumer borrowing increased at an annual rate of $5 billion in January, or 2.5 percent. While consumers cut back on their credit card use during that time, they went out and purchased new cars. The category that includes auto loans rose 6.9 percent in January, helped by improved car sales, the Associated Press reports. In January, credit card debt declined 6.4 percent, which is the 28th drop in 29 months.

Consumers are taking out more auto loans to purchase new vehicles, which recently boosted overall consumer borrowing.

The increase in auto loans was the sixth consecutive month that category has increased. This could be due to consumers who are more comfortable with taking on the debt load of a new auto loan, attractive new car incentives and lenders who are loosening their credit criteria and extending auto loans to consumers with less-than-perfect credit scores.

Car shoppers who purchased new vehicles in January had an overall lower FICO score compared to new car shoppers a year ago. According to CNW Research, the average FICO score for new car buyers in January was 697.5, which is the lowest it's been since January 2006, when the average score was 694.9. In January 2010, the average score was above 725.

CNW's preliminary February data shows that the average FICO score for new car buyers will continue to decline to 692.5, which is the lowest since December 2005.

Analysts are predicting that consumers will borrow more in upcoming months, thanks to a strengthening economy and better jobs outlook, the AP reports.

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