Vehicle Prices Rise, Loan Payments Barely Budge

“We’ve seen lenders and consumers find ways to make monthly payments more affordable” says Experian’s Melinda Zabritski.

Steve Finlay, Contributing Editor

September 4, 2020

3 Min Read
front of pickup truck
The average loan amount for a full-sized pickup truck was $46,502 in the second quarter, says Experian. Big pickups became the most-popular segment then.Getty Images

Even though new-vehicle prices keep going up, monthly loan payments stay much the same.

How’s that possible? It’s the same old story. Borrowers are stretching loan terms to keep monthly payments manageable, credit tracker Experian says in its Q2 2020 State of the Automotive Finance Market Report.

In many respects, vehicle consumers payment shop, almost focusing more on the amount of the monthly payment than on the price of the vehicle. Dealers go with that flow, working up monthly payments that are shopper-palatable, however lengthy.

The downside of those extended terms is the loans ultimately cost more because interest is charged on them longer. But with interest rates as low as they are, that’s not a deal breaker for most consumers. And it certainly wasn’t an issue when automakers offered zero-percent financing to jumpstart COVID-related slow sales in March and April.      

The average loan amount for a new vehicle reached $36,072 in this year’s second quarter, an increase of nearly $4,000 from a year ago, according to Experian.

The average loan amount for a used vehicle was much smaller, up $760 from a year ago, reaching $20,916.

The increases in average vehicle prices and loan amounts stems in part from shifts in consumer preferences, specially to utility vehicles and pickup trucks that cost more than cars.

Rather astoundingly, the average loan amount for a full-sized pickup hit $46,502 in the second quarter. And they’re hot, hot, hot in the current market. It’s almost as if buyers are waiting for them as they come off transporters at dealerships.  

During the second quarter, full-sized pickups became the most popular vehicle segment, making up 16.09%, followed closely by small SUVs (14.33%)

The average monthly payment for a new vehicle was $568. That’s an increase of $18 from the previous year. The average monthly payment for a used vehicle increased $5, bringing it to $397.

The average loan term for a new vehicle was 71.54 months, up from 69.17 in Q2 2019. The average loan term for a used vehicle was 65.30 months, up from 64.82 months.

Experian says it’s important to note that the percentage of new loans with terms between 85 and 96 months increased from 1.3% in Q2 2019 to 4.8%t, with many of these extended to prime-credit consumers. The benchmark for a loan term that’s pushing it is 84 months. In contrast, there once was a time when auto loans of 12  and 24 months were standard.

Experian Melinda Zabritski cropped_1 - Copy.jpg

Experian Melinda Zabritski cropped_1 - Copy

Prime and super prime consumers made up 74.96% of new-vehicle loans in Q2 2020, up from 71.89% same-time a year ago, Experian says. (Melinda Zabritski, left)

New-vehicle interest rates decreased from 6.27% in Q2 2019 to 5.15% in Q2 2020. Interest rates for used vehicles decreased from 10.07% to 9.69% during the same time period.

“With vehicle loans becoming more expensive, we’ve seen lenders and consumers find ways to make monthly payments more affordable – relying on lower interest rates and extending loan terms,” says Melinda Zabritski, Experian’s senior director-automotive financial solutions.

“Lenders need to minimize risk and find finance options that meet the needs of car shoppers,” she adds. “Ensuring loans are affordable and fit within the consumers’ budgets will be a priority.”

Additional Experian findings for this year’s second quarter:

  • Leasing saw a decrease year-over-year, making up 25.81% of new vehicles in Q2 2020, compared with 32.03% in Q2 2019.

  • Subprime loans made up 22.18% of total auto loans, an all-time low. Many lenders in recent times have backed away from the relatively risky subprime segment.   

  • The average credit score for a new-vehicle loan increased four points year-over-year, from 717 in Q2 2019 to 721 in Q2 2020. The average score for a used-vehicle loan increased a point, from 656 to 657.

 

About the Author(s)

Steve Finlay

Contributing Editor, WardsAuto

Steven Finlay is a former longtime editor for WardsAuto. He writes about a range of topics including automotive dealers and issues that impact their business.

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