Smart Borrower Blog

Auto Lending Taking Top Priority for Banks

Dec 29th, 2010 @ 1:57 PM by Amber Nelson

Toronto-Dominion Bank (TD) has agreed to buy car loan company Chrysler Financial Corp. for $6.3 billion in cash as of Tuesday. Why is this pertinent information? Because it signals just how important auto lending has become to bank portfolios these days.

Auto loans make up roughly 30 percent of all consumer debt, according to TD. Only mortgage loans and credit card loans have larger market shares, but car loans tend to be much safer than the other two, making them very attractive to banks right now. For example, according to credit bureau TransUnion, auto loans in the third quarter had a delinquency rate (loans behind by 60 days or more) of 0.58 percent. The delinquency rate for credit cards was higher at 0.83 percent, and the mortgage delinquency rate was at a much riskier 6.44 percent.

“Auto lending right now appears to be kind of a safe harbor as it compares to mortgage or credit card,” said Peter Turek, automotive vice president in TransUnion’s financial services group. “Auto lending for banks at least is probably a more likely candidate for expansion.”

Along with shorter loans terms, auto lending is appealing because it “doesn’t require the same degree of physical presence and local expertise,” TD said, as quoted in a Wall Street Journal article.

And the business is good in auto loans right now. According to Ally Financial Inc. (formerly GMAC, the auto lending branch of General Motors) total car loans in the third quarter rose to a value of $8.3 billion, up from $5.6 billion one year before and from $8 billion during the second quarter.

What’s more, TransUnion’s recent reports have indicated that there are a sizable number of leases and loans set to expire next year, providing room for even more growth in the auto lending sector.

With TD’s purchase of Chrysler Financial, it is poised to become the fifth largest U.S. auto lender, and it hopes to generate more than $1 billion each month in car loans by 2013. If such numbers are possible, it looks like the auto loan industry will be one of the strongest sectors to help stabilize the economy until the housing market can right itself.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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