The average monthly new-vehicle payment reached a record high of $530 in this year’s third quarter, according to credit tracker Experian’s latest report on U.S. automotive lending.
Increasing monthly payments are spurring not just many consumers of limited wherewithal into the lower-priced used-car market, but also a sizeable portion of prime and super-prime customers, Experian says.
For the first time since 2010’s third quarter, prime and super-prime borrowers make up more than 50% of the used market. Affordability is coming into play more.
“Many car shoppers base their decision on monthly payment. And with such a sizeable difference between new and used monthly payments, some consumers may opt for the less-expensive vehicle,” says Melinda Zabritski, Experian’s senior director-automotive financial solutions.
The average monthly payment for a used vehicle also reached a record high –
$381, but the gap between new and used monthly payments continues to widen, reaching $149, according to the report.
“We believe every consumer deserves access to an affordable vehicle,” Zabritski says. “Lenders need to analyze the data and trends, so they can offer appropriate financing options.”
With the uptick in average credit scores for vehicle financing across the board, the percentage of subprime loan originations reached its lowest level in 11 years.
Subprime and deep-subprime lending made up 21.19% of the market, down 1.5% from a year ago, according to Experian’s latest State of the Automotive Finance Market report.
Much of the decrease in the percentage of subprime lending is driven by high growth rates in the lower-risk segments – particularly in the used vehicle category.
Loans for subprime consumers made up the lowest percentage (22.86%) of the used-vehicle loan market on record, while loans for deep-subprime borrowers reached an all-time low of 4.33%.
“The automotive finance market, like many other industries, is cyclical,” Zabritski says. “So, while the percentage of subprime loans has reached historically low levels, the trend isn’t entirely unprecedented.”
A market-share shift can be attributed to many factors, including an improvement in consumer credit behavior and vehicle affordability, she says. Lenders need to “make the right decisions and adjust risk management strategies accordingly.”
Interest rates also continue the upward trend. The average interest rate for a new vehicle loan was 5.73% in this year’s third quarter, up from 5.10% in last year’s. The average interest rate for a used-vehicle loan was 9.03%, up from 8.72% for the same period.
Additional report highlights:
- The average credit scores for new- and used-vehicle loans continue to increase, reaching 717 and 661, respectively.
- The total outstanding automotive loan balance hit $1.17 trillion, but the year-over-year growth is slowing.
- Thirty- and 60-day delinquencies improved during the quarter, dropping from 2.39% to 2.23% and 0.76% to 0.72%t, respectively.
- Credit unions continue to see a significant increase in new- and used-vehicle financing market share, rising 10.7% and 5.2%, respectively.
- Average new-vehicle loan terms decreased to 68.47 months.
- New loan amounts hit a Q3 high of $30,977, up $647 year-over-year.
