Experian says leasing levels highest on record

Leasing has reached its highest level on record as the average loan amount and monthly payment for new vehicles continue to trend upward, according to the latest research from Experian Automotive.

According to its most recent State of the Automotive Finance Market report, leasing accounted for 31.1% of all new vehicle transactions during the first quarter of 2016. Additionally, while leasing is still predominately an option for new vehicle financing, used vehicle leasing increased 2.1% from a year ago.

“The continued rise in new vehicle costs have kept many consumers exploring options to keep their monthly payments affordable,” said Melinda Zabritski, Experian’s senior director of automotive finance. “As long as vehicle prices continue to rise, we can expect leasing rates to grow along with them. However, consumers need to understand the nuances of their lease agreements and make sure that leasing fits their lifestyle.”

Findings from the report also show an increase in the percentage of prime consumers who shifted to the used vehicle market. In fact, prime borrowers elected to purchase a used vehicle more than 54% of the time in Q1 2016, a 4.8% increase from the previous year.

However, the opposite is true for the new vehicle finance market. While the percentage of sub-prime borrowers in the total loan market decreased 1.1%, the percentage of subprime borrowers for new vehicles saw a 5.5% increase from a year ago.

“The record highs we have seen in vehicle prices also have had a significant impact on the loan market,” continued Zabritski. “For example, the number of prime borrowers who switched to leasing has driven an increase in the percentage of sub-prime borrowers shown in the new vehicle segment. As a result, we will continue to see consumers view used vehicles, longer-term loans and leasing as a way to keep payments affordable.”

The shifts in risk tier distribution for new and used vehicles also is reflected in average credit scores. The average credit score for a new vehicle loan was 710, down three points from the previous year, while the average credit score for a used vehicle loan was up three points to 645.

Experian’s data also shows that in Q1 2016 the percentage of new vehicles financed was 86.3%, up 1.6% from a year ago. The average loan amount for a new vehicle reached $30,032, an all-time high, while the average loan amounts for used vehicles were $20,723 (franchise dealers) and $16,124 (independent dealers) — both Q1 highs.