December 1, 2023

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The share of subprime and deep subprime new-vehicle loan originations in the third quarter hit its lowest level since 2012, while prime and super prime loans continued to make up nearly three-quarters of the market, according to Experian’s latest State of the Automotive Finance Market report, released Thursday.

Subprime and deep subprime new-vehicle loan originations made up only 10.74 percent of the market, according to Experian, down 4.3 percent from a year earlier.

“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,” Melinda Zabritski, senior director of automotive finance for Experian, said in a statement.

The decrease in subprime originations is a result of lenders tightening their criteria and consumers improving their credit, she said.

“More consumers who are prime or super prime are the consumers who are obtaining the financing. The subprime consumers are still out there shopping, and they’re still out there obtaining their loans,” Zabritski told Automotive News. “But we are seeing more loans coming into the market that are in better credit quality. Some of that could be a result of lenders tightening up a little bit.”

Terms, payments rise

New-vehicle loan terms reached an all-time high of 69 months as the 61- to 72-month loan segment has become the new norm, Zabritski said. Loans originated with a 61- to 72-month term accounted for 43.2 percent of the market. Loans of 73-84 months made up 30.5  The way that people are searching is changing. More than ever, they’re using voice-activated search engines like Alexa, Google Home, and voice search on mobile phones. By 2020, more than 50 percent of search will be done by voice. So, what do these changes mean for your dealership.

“We have kind of hit a threshold there. It’s lower than it’s been the last couple quarters on the new-vehicle side,” Zabritski said. “We continue to see loans shift from that 60 months to 61-72, and that’s where we’re seeing a lot of the growth.”

The average used-vehicle loan term increased to 64 months, from 63 months a year earlier.

Despite the loan term extensions, the average monthly payment increased $6 for both new- and used-vehicle loans. New-vehicle loan payments hit $502 per month, and used-vehicle payments rose to $412.

“You’ve got the loan term stretching, but you also have the loan amounts growing as well as the interest rates are beginning to rise,” Zabritski said.

The balance for all open auto loans and leases jumped 6.8 percent from a year earlier to $1.121 trillion, while the average loan amount for third-quarter new-vehicle originations grew to $30,329, up 1 percent. For used-vehicle originations, the average loan amount was relatively flat at $19,291.

The average interest rate on a new-vehicle loan climbed 39 basis points to 5.1 percent. On used-vehicle loans, the average interest rate grew 22 basis points to 8.72 percent.

“So despite those loan terms extending, the compounding factors of higher loan amounts and increased rates are contributing to have that monthly payment increase,” Zabritski said.


Consumers continued to prioritize a low monthly payment by leasing vehicles or financing used vehicles, Zabritski said. But what had been a rapid rise in leasing has leveled off.

Lease share in every credit tier except super prime decreased during the quarter. Still, lease penetration was relatively flat at 29.1 percent of new-vehicle transactions. Zabritski predicts leasing will continue to hover around 30 percent. Affordability is still top of mind for lease consumers, she said. The average monthly payment on a lease was about $90 less than a new-vehicle loan in the quarter.

The average lease payment, however, was still $47 more than the average used-vehicle payment. Prime and super prime borrowers continued to finance more used vehicles, making up about half the market. Subprime and deep subprime borrowers only made up 31.3 percent of used-vehicle financing.

“It’s clear affordability is a driving force in a consumer’s decision to finance a vehicle,” Zabritski said, “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 is buying new or used.”


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