Rising student loan debt affecting car leasing industry
Increases in student debt has begun to put the brakes on students' aspirations to buy a new set of wheels.
Many are figuring out the growing difficulty of attempting to acquire a car lease.
“It’s not uncommon for people to find themselves in financial difficulty or in a lifestyle change where they need to get out of their lease,” said Scot Hall, executive vice president of Swapalease.com, a website where prospective consumers transfer automotive consumer leases online. “This black cloud of debt is going to make other loans more difficult in the future.”
Hall said younger individuals are being rejected for leases more often, at a rate greater than older drivers.
“We believe the student loan debt situation is a huge reason for why,” said John Sternal, a Swapalease spokesperson.
In order to complete the Swapalease program, customers must first get their credit approved by the bank that holds the exchanged lease.
Because of a lack of credit, lending history, a generally poorer expense-to-income ratio and student loan debt, students and recent graduates in particular are having a more difficult time acquiring leases, Hall said.
A December study by The Institute for College Access & Success found the average 2012 bachelor’s degree graduate finished school with $29,400 in debt. Since 2008, the average federal and private loan debt climbed an average of 6 percent annually.
Hall said student approvals overall have increased since the Great Recession. However, they are increasing at a lesser rate than other demographics.
“All the ships are rising with the tide,” Hall said. “Unfortunately, a few of these younger individuals are being anchored down by their student loan debt.”
Misty Carson, a finance manager of Auto Group Leasing LLC, said although students have had recent difficulties in attempting to finance cars, she did not believe they were riskier than any other age group.
She said students and military veterans, among others, were once able to finance cars through special programs, which are no longer available.
“Before PNC took over National City, National City would give loans to recent college graduates with an employment letter without them having credit," Carson said. "I believe there are no lenders in this area that do that any longer.”
Sternal said leasing in particular is affected by credit and thus student loan debt. It is important to have established credit, which most students lack, to acquire a lease.
“It’s not like you get the car and it’s yours. The car is always the bank's,” Sternal said. “It’s easier to buy a car with bad credit than lease a car.”
Even though banks are rejecting students and recent graduates at rates greater than other demographics, Sternal said there is still an observable increase in the number of youth attempting to acquire a lease.
“The younger generation loves leasing,” he said. “They don’t want to hang onto a car for 10 years. They want to hold onto one for a couple of years and then get something different.”