Auto leases soar

Consumers continue to lease vehicles at a record pace according to the latest research from Experian Automotive, which shows the highest percentage of vehicles leased since the research company began tracking the data publicly in 2006.

Data from the company’s Q3 State of the Automotive Finance Market report shows leasing accounted for nearly 27% of all new vehicle transactions in the past three months, up from 24.7% the previous year. Findings from the report also showed that the average monthly lease payment was $398 during the quarter, up $1 from a year ago.

Consumers continue to rely on financing to purchase their car; the percentage of new vehicles financed reached an all-time high of 86.6%.

“As the price for a new or used vehicle continues to rise, leasing has become a more viable financing option for consumers looking to maintain an affordable monthly payment,” said Melinda Zabritski, Experian’s senior director of automotive finance.

“While consumers can save an average of $84 per month by leasing rather than taking out a loan on a new vehicle, they should make sure leasing fits their lifestyle. Often times there are mileage caps and other considerations that consumers should familiarize themselves with before entering into a leasing agreement,” she warned.

Rising vehicle prices also have given way to record loan amounts for new and used vehicles. During the third quarter of 2015, the average amount financed for a new vehicle was $28,936, up $1,137 from the previous year. The average amount financed for a used vehicle was $18,866, up $290 over the same time period.

New vs old

Furthermore, the gap between new and used loan amounts has also grown. On average, consumers finance $10,070 less on a used vehicle than on a new one.

Extending loan terms is another method consumers turned to in order to keep monthly payments low. During the third quarter of 2015, the percentage of consumers who took out new and used vehicle loans with terms between 61 and 72 months reached all-time highs.

For new vehicles, approximately 44% took out 61- to 72-month loans, and more than 41% financed a used vehicle for the same duration. The percentage of consumers extending their loans even longer also has increased.

Loans for new vehicles extending 73 to 84 months increased 17.1% over the previous year, reaching a Q3 record high of 27.5%. Used vehicle loans extending in the 73- to 84-month term, however, reached an all-time high of 16.2% (a 12% increase over the previous year).

The average credit score for a new vehicle loan fell to 710, the lowest since Q3 2007. During Q3 2015, the average monthly payment for a new vehicle was $482, up $12 from the previous year, while the average monthly payment for a used vehicle reached $361, an increase of $3 from a year ago.

Captive lenders gain ground

One of the biggest shifts in the automotive lending industry during Q3 2015 was the resurgence of captive lenders. In the third quarter of 2015, captive lenders financed 51.6% of new vehicle loans, up from 36.8% in Q3 2011. This represents the largest market share of new vehicle financing for captives since the recession, Experian says.

Market share findings for other lending types show banks still holding the largest share for new and used vehicle loans combined, at 34.7%. Finance companies, which get most of their business from customers with subprime and deep-subprime credit, gained share year over year, reaching 13.34% in Q3 2015, up 6.4% from the previous year.

“Captive lending has made a comeback since suffering a steep drop-off caused by declining new sales and lender-type shifts during the recession,” Zabritski continued. “This is good news for manufacturers, as their captive finance companies often provide an additional source of revenue as well as a strong pipeline to credit for their dealer networks.