Recent auto financing forecasts made available by Moody’s (NYSE:MCO) Analytics Credit Forecast.com economic forecast point to a trend of auto company dealerships across the country: total U.S. auto lease balances increased 9% in March, representing twice the increases in auto loan balances, according to PR Newswire.
While the number of consumers who take loans to help finance the purchase of an auto still outpaces leases, leasing options are growing, and the volume of leases as opposed to loans is growing more rapidly, expecting to peak at 50% of financing by 2017. Its unknown if this includes lease takeovers from consumers wanting to get out of a car lease and transfer the lease to others consumers, who may finance the lease through the original leasing company.
Why the growth in auto leasing?
At present, lease financing represents around 10% of U.S. auto lending provided by finance companies, who originate over half of all U.S. automobiles. As the economy improves, finance company’s are opening up their wallets more to consumers with higher rated credit scores in order to move product out of the showrooms.
According to Dr. Cristian de Ritis, Director of Consumer Credit Economics at Moody’s Analytics, “Growth in originations by auto finance companies will drive further expansion in lease balances over the next five years. Auto finance companies, who issue the large majority of auto leases, are more sensitive to the growth of the U.S. economy, and as the economy grows, they are likely to grow their auto lending originations faster than banks will.”
Lease options and financing are growing most quickly in Florida, California, and the Northeastern U.S.
*This coincides with the highest volume of lease takeovers produced from consumers in New York, California, Texas and Florida seeking a way how to get out of a car lease early, through a lease transfer.
Lease options are at times more advantageous for consumers, as they generally require a smaller down payment, and monthly payments can be lessened through negotiation of end-of-term options, including the value of the car.