Auto Loans – Payments Higher, Subprime Lending Lower

New loan amounts achieved a Q3 high of $30,977, up $647 year-over-year.

New and used vehicle payments have reached the highest levels in history as interest rates continue to rise, according to Experian. As a result, there’s an upturn in average credit scores for vehicle financing across the board. This is big business. The total outstanding automotive loan balance reached $1.17 trillion in September.

On the other side of the ledger, the  percentage of subprime loans  – so-called originations – reached the lowest level in 11 years. Experian’s Q3 2018 State of the Automotive Finance Market says that subprime and deep-subprime lending made up 21.19% of the market, down 1.5% from a year ago.

Some look to vehicle affordability trends – or lack thereof –  as a driving force behind consumer choices. The monthly payments for new and used vehicles again reached record highs  in Q3 – $530 and $381, respectively – and the gap between new and used monthly payments continues to widen, reaching $149. The difference between leasing and buying on roughly the top Ten sellers is about $100 a month less for leasing. The average loan is now 72 months, but consumers  on average change vehicle every 34-36 months. 

Not coincidentally, interest rates also continue an upward trend. The average interest rate for a new vehicle loan was 5.73% in Q3 2018, up from 5.10% in Q3 2017, while the average interest rate for a used vehicle loan was 9.03%, up from 8.72% over the same time period.

Much of the decrease in the percentage of subprime lending comes from high growth rates in the lower-risk segments – particularly in the used vehicle category. In fact, more than 50% of the used market is made up of prime and super-prime borrowers for the first time since Q3 2010. 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. So, while the percentage of subprime loans has reached historically low levels, the trend isn’t entirely unprecedented,” Melinda Zabritski, Experian’s senior director of automotive financial solutions, told AutoInformed this morning. “A shift in market share can be attributed to many factors, including an improvement in consumer credit behavior and vehicle affordability. Lenders need to pay close attention to these trends so they can make the right decisions and adjust risk management strategies accordingly.”

What does this mean for customers? “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,” Zabritski said. “We believe every consumer deserves access to an affordable vehicle. Lenders need to analyze the data and trends, so they can offer appropriate financing options.”

Fun aside from Zabritski – used vehicle leasing almost rounds to zero at 30,000 a quarter or  a mere 4% of the lease market.

Additional Findings Q3 2018

  • The average credit scores for new and used vehicle loans continue to increase, reaching 717 and 661, respectively.
  • 30- and 60-day delinquencies improved during the quarter, dropping from 2.39% to 2.23% and 0.76% to 0.72%, 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 achieved a Q3 high of $30,977, up $647 year-over-year.

See also: A Regional Look at EV Sales


About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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