Experian data shows auto finance market gains strength and stability, while subprime originations hit record low
COSTA MESA, Calif., Dec. 7, 2017 /PRNewswire/ -- While industry naysayers have predicted the bursting of the so-called auto finance subprime bubble for some time, Experian data shows that the market continues to gain strength and stability. 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 percent), while super-prime buyers showed the largest increase, reaching 20.16 percent 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," said Melinda Zabritski, senior director of automotive finance for Experian. "The market turning more prime is an encouraging trend. 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 Q3 report also found that 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 statistic could trigger an alarm for some market watchers, findings showed that buyers outside prime decreased by 4.3 percent, making up only 10.74 percent of the new car loan market.
Prime and super-prime buyers shifted to used vehicles, growing to make up 49.83 percent of the used car market. In comparison, the percent of buyers outside prime have decreased, making up only 31.34 percent of the market (only slightly above last quarter's record low). Deep-subprime consumers, with a credit score of 500 or below, obtaining used vehicle loans dropped 9.2 percent to reach an all-time low of 4.64 percent of the market.
"It's clear that affordability is a driving force in a consumer's decision to finance a vehicle, and 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," continued Zabritski. "By unlocking the potential of this market data, we can help consumers and the industry achieve more by empowering them to make better decisions."
Past reports have shown that consumers often choose leasing to reduce monthly payments. But this quarter's report showed a slight decrease in leasing across all risk categories, as more buyers shift to the loan market. The only exception was the super-prime category, which increased slightly (1.8 percent).
The average amount financed for new vehicles in the third quarter was $30,329, up $291 from Q3 2016. For used vehicles, the average amount financed reached $19,291, an increase of $56 over the previous year. As for monthly payments? For new vehicles, the average payment was $502 per month, increasing by $6 over the previous year, while used vehicle payments averaged $365 per month, up $3 from the previous year.
Other key findings from the Q3 2017 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.
For more information regarding this quarter's analysis, check out the recorded webinar or go to http://www.experian.com/automotive. To purchase historical information from Experian Automotive's other research, visit http://www.experian.com/automotive/autostore.html.
Experian® is the world's leading global information services company. During life's big moments — from buying a home or a car, to sending a child to college, to growing a business by connecting with new customers — we empower consumers and our clients to manage their data with confidence. We help individuals to take financial control and access financial services, businesses to make smarter decisions and thrive, lenders to lend more responsibly, and organizations to prevent identity fraud and crime.
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