The automotive-finance market continues to gain strength and stability, defying naysayers’ predictions, according to Experian’s latest State of the Automotive Finance Market report.
Prime consumers grabbed the lion’s share of the total finance market (40.9%), while super-prime buyers showed the largest increase, reaching 20.16% of market share.
Conversely, the number of consumers outside prime (with a score of 600 or below) notably decreased, hitting the lowest total finance market share on record since 2012.
“For some time now, the story has been focused incorrectly on the rise in subprime lending. But the data over the last several quarters has shown that the entire market is growing, not just subprime,” says Melinda Zabritski, senior director of automotive finance for credit-tracker Experian.
“The market turning more prime is an encouraging trend,” she says. “It indicates that industry professionals are using data and analytics as part of the lending process, and consumers are taking a more active role in managing their credit before buying a car.”
The third-quarter report also found loan terms for new vehicles extended, and credit quality for obtaining a loan on both new and used vehicles notably improved.
The average term for new-vehicle loans hit an all-time high of 69 months. While this level could alarm some market watchers, findings show buyers outside prime decreased by 4.3%, making up only 10.74% of the new-car loan market, Experian says.
Many prime and super-prime consumers shifted to used vehicles. Those two groups now make up nearly half of consumers financing preowned vehicle purchases.
In comparison, the percent of buyers outside prime have decreased, making up only 31.3% of the market (only slightly above last quarter’s record low).
The number of deep-subprime consumers (credit scores of 500 or below) obtaining used-vehicle loans dropped 9.2% to an all-time low of 4.64% of the market.
Affordability clearly is a driving force in a consumer’s decision to finance a vehicle, Zabritski says. “The data shows that consumers are focused on doing what they need to do to reduce monthly payments and obtain the right vehicle that fits their needs, whether it’s buying new or used.”
Previous Experian auto-financing reports have shown consumers often choose leasing to reduce monthly payments. But this quarter’s report shows a slight decrease in leasing across all risk categories, as more buyers shift to loans. The only exception: the super-prime category, which increased slightly (1.8%).
The average amount financed for new vehicles in the third quarter was $30,329, up $291 from the same time last year.
For used vehicles, the average amount financed reached $19,291, an increase of $56 over the previous year.
The latest report says monthly payments for new vehicles averaged $502, increasing by $6 over the previous year. Used-vehicle payments averaged $365 per month, up $3 from the previous year.
Other key findings from the quarterly report:
•The average credit score for financing a new vehicle (both loans and leases) was 716.
•The average credit score for financing a used vehicle was 659 (620 for independent and 682 for franchise dealers).
•While average new vehicle loan terms hit 69 months, the average term for used-vehicle loans was 64 months.
•Total open automotive loan balances reached $1.121 trillion, up 6.8 percent from the previous year.
•The average new-vehicle lease payment was $412, up $6 from Q3 2016.
•The average financing interest rate was 5.1 percent for new vehicles and 8.7 percent for used vehicles.
•Credit unions and captive lenders increased market share of total vehicle financing, growing to 21 percent and 29.8 percent — an increase of 6.9 percent and 35.1 percent, respectively.
•Banks lost market share of total vehicle financing, dropping 6.3 percent to reach 32.9 percent of the market.