Auto loans at 15-year low

Avia Collinder, Business Writer

Interest rates on motor-vehicle loans have fallen to what finance sector insiders are describing as a 15-year low, but consumers are not exactly beating a path to the doors of local lenders.

For some financial institutions, car loans represent at least 25 per cent of their retail portfolio.

A Sunday Business survey of rates among some credit unions and banks carried out in the second week of June showed charges being between 14 per cent and 19.95 per cent, depending on the age of the vehicle.

lowest rate

The lowest rate was recorded at the UWI (Mona) and Community Co-operative Credit Union, where 14 per cent was quoted on vehicles up to eight years old.

The Bank of Nova Scotia Jamaica is offering 95 per cent financing on new vehicles, with 84 months to repay at a 16.95 per cent rate, down from 19.25 per cent quoted back in October 2009.

Freebies attached to car loans are now the order of the day among financial houses seeking to outdo each other in a climate of subdued consumer demand for this type of credit.

Among the giveaways are cash for petrol and financing for a vehicle-tracking system.

C&WJ Co-operative Credit Union Limited, the Cable and Wireless affiliate, has advertised car loans starting at 16.5 per cent per annum, with free loan-insurance protection of up to $1 million.

"I don't believe that

But market waiting for rates to go lower this has happened for more than 15 years," Clovis Metcalfe, managing director of FirstCaribbean Inter-national Bank Jamaica said this week.

He was referring to the price of the loans.

"In 1992-1993, our car-loan rate was approximately 21 per cent," he said.

FirstCaribbean's car loans start at 16.99 per cent on the reducing balance, 11 percentage points down from the 28 per cent that obtained a year ago.

But auto-loan subscriptions have not improved with the loan-rate drop.

"The take-up was, in fact, better in the prior year (2009) when measured by loan growth," Metcalfe said.

Since October last year, the bank has been among several offering inducement deals, including a refinancing loan for motor vehicles no older than two years, short-term insurance financing, and vehicle licensing.

The skittishness among borrowers is being attributed in part to the expectation of a further lowering of interest rates. In response to this, some lenders are promising that any further rate declines will be passed on to those who borrow now.

"The credit union's loan agreement speaks to a variable rate of interest," noted Janyce Robinson, general manager for credit and administration at Churches Co-operative Credit Union.

rates of interest

Car loans there now range from 16.95 per cent to 19.95 per cent, at least seven percentage points on average below June 2009 rates of 22-30 per cent.

But at Churches, too, take-up is reportedly flat.

In the first quarter of 2010, the credit union disbursed J$105 million in approved car loans, down from $109 million in first three months of 2009.

The credit union is hoping that this performance will improve, and has budgeted 34.2 per cent of its 2010 personal loan portfolio for car loans.

This allocation is up from the 30.2 per cent disbursed in 2009 and 31.9 per cent in 2008.

But loan rates apart, reduced spending power and higher car prices are affecting the banks' car loan rate push.

President of the Automobile Dealers Association, Kent LaCroix, noted that most cars are purchased in US currency from Japan.

LaCroix said that with the Japanese yen having been very strong, averaging 90 to US$1, and the Jamaican Government's withdrawal of stimulus incentives for the local auto industry in March, motor-vehicle prices are likely to rise by as much as 15 per cent.

Auto sales in the first quarter of 2010 were eight per cent less than in the same period last year, LaCroix said.

FirstCaribbean, in the meantime, is suggesting that it is prudent for lenders to remain flexible as market conditions change.

"It is in every bank's interest to retain customers by making timely adjustments to the pricing of their variable-rate products, especially as market prices themselves reduce," said Metcalfe.

avia.collinder@gleanerjm.com