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Incentives help push loan terms down.

Manufacturers’ Incentives Ease Sticker Shock

Dealers still struggle to secure affordable payments for consumers.

OEM incentives, in the form of cut-rate auto loans and leases, are becoming more common, and incentives are also responsible for captive finance companies gaining market share, according to Experian Automotive data.

That’s happening as new-vehicle inventory rises and interest rates grow across the U.S. economy. Those are among the factors that leave dealers struggling to secure affordable monthly loan payments for consumers.

Many of the changes in Experian’s second-quarter State of the Auto Finance Market report come “straight out of incentives,” says Melinda Zabritski, senior director of automotive financial solutions for Experian.

For example, Experian finds the average loan term declined in the second quarter vs. a year ago. The average new-vehicle loan term in the second quarter was 68.1 months, down from 69.9 months in the second quarter of 2022. The average term also declined in consecutive quarters: from Q4 2022 to Q1 2023, to Q2 2023.

Zabritski says the shorter average term is probably because manufacturers and their captive finance companies put incentive money into lower-interest-rate loans tied to shorter terms. “A majority of the offers seem to be on 36 and 48 months,” she says.

Nevertheless, with the Federal Reserve hiking interest rates, average auto finance interest rates continue to rise, too. The average new-vehicle loan rate was 6.63% in the second quarter, up from 4.6% a year ago. The average used-vehicle loan rate was 11.38% in the second quarter vs. 8.84% a year ago, Experian says.

Likewise, with monthly payments. Experian says the average monthly new-vehicle payment was $729 for the second quarter, up about 8.5% vs. a year ago. The average used-vehicle payment increased less — to $528, up only about 1.7%, as used-vehicle auction prices are down.

One infallible sign that incentives are on the rise is an increase in market share for the manufacturers’ captive finance companies, Zabritski says.

Captive, new-vehicle share for loans and leases combined was 58.5% in the second quarter. That’s up from 46.8% a year ago, Experian reports. The increase comes at the expense of banks and credit unions.




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