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Auto lending at the center of credit spike

Aug 11, 2013 Phil Burgess

As the economy continues to rebound and Americans' consumer credit reports start to improve, lending companies could see an increase in business, as buyers look to make major purchases.

In particular, the development appears to be a good sign for the auto lending industry as consumers are increasingly focused on taking out loans to finance new car acquisitions. The Wall Street Journal reported that data from the Federal Reserve found that nonrevolving credit lines spiked by $12.6 billion in June. Including student loans and auto finance funding, the nonrevolving measure is a solid indicator of consumer spending habits.

The source noted that student loans accounted for just $3.3 billion of the additional June credit, indicating that auto borrowing made up the vast majority of the additional loan activity.

Earlier in the year, consumer borrowing was confined mostly to student financing. However, the source stated that as the economic recovery progresses, more individuals are becoming increasingly comfortable with opening their wallets and carrying additional debts. Fortunately for auto lenders, it's unlikely that new car transactions will stagnate anytime soon, as The Wall Street Journal indicated that industry economists believe auto sales for 2013 will ultimately return to levels seen prior to the start of the Great Recession.

Auto and student borrowing activities have outpaced revolving credit growth, which includes traditional credit cards. According to The Associated Press, nonrevolving credit has jumped $312.6 billion since June 2011, while revolving debts have risen by just $16 billion in the same period.

Second half optimism
Although the positive economic developments seem to have been specific to auto financiers and student loan providers, the AP suggested that the second half of 2013 could be more lucrative for businesses, lending outlets and other American enterprises.

As consumers and corporate leaders figure out how to properly navigate the economic landscape that has resulted from higher tax rates and spending cuts that went into effect at the start of the year, spending will probably increase. The source reported that the national economy grew by just 1.4 percent in the first half of 2013. However, economists believe that spending and borrowing in the last six months of the year could boost the economy by 2.5 percent.

Overall, it's good news for short term lending outlets, banks and other credit enterprises that are looking to find more stable ground in the improving economy.