New and used auto financing at record highs

The average amount financed for new and used vehicles hit record highs at the end of last year, according to the new analysis from Experian.

The credit agency’s State of the Automotive Finance Market report for Q4 2016, which provides lenders with a quarterly analysis of the current trends and overall health of the automotive finance market, shows the average loan amount for a new vehicle reached a record high of $30,621.

The average loan amount for a used vehicle also reached record levels, jumping from $18,850 in Q4 2015 to $19,329 in Q4 2016.

The research suggests consumers are turning to longer-term loans to help reduce the cost of monthly payments.

The report revealed the number of consumers opting for auto loans with terms of 73 to 84 months on their new vehicles increased from 29% in Q4 2015 to 32.1% in Q4 2016.

In the used car market, there was an increase in 73 to 84-month loans from 16.4% in Q4 2015 to 18.2% in Q4 2016.

Melinda Zabritski, Experian’s senior director of automotive finance, said: “With the average loan amount for new and used vehicles hitting all-time highs, we are seeing the need for affordability drive consumer purchasing behaviour.

“Our latest research shows an $11,000 gap between the average loan amount on a new and used vehicle — the widest we have ever seen.”

“This upward trend is causing many consumers to find alternative methods like extending loan terms, getting a short-term lease or opting for a used vehicle to get what they want while staying within their monthly budget.”

For consumers who still want to drive a new vehicle, leasing costs an average of $92 less per month compared to financing.

The average monthly payment for a new leased vehicle is $414, versus $506 per month for a new vehicle purchase. The number of consumers who chose to lease a new vehicle increased slightly from 28.87% in Q4 2015 to 28.94% in Q4 2016.

Another key finding in the report is the increase in delinquency rates year-over-year. Thirty-day delinquencies inched up slightly from 2.42% in Q4 2015 to 2.44% in Q4 2016, while 60-day delinquencies increased from 0.71% to 0.78%.

Better credit scores

In response to these increases in delinquencies, lenders continue to adjust their lending strategies by shifting more loans towards customers with better credit. For new vehicle loans, the average credit score moved from 712 in Q4 2015 to 714 in Q4 2016.

For used vehicle loans, the average credit score jumped five points from 649 in Q4 2015 to 654 in Q4 2016.
Overall, lending to deep-sub-prime and sub-prime customers decreased from 22.05% of the total lending market in Q4 2015 to 20.82% in Q4 2016. Lending to prime and super-prime customers jumped from 57.86% in Q4 2015 to 59.41% in Q4 2016.

Zabritski said: “Delinquencies are always an important indicator of the overall health of the automotive lending market, but it is equally important to watch how lenders react when they see a rise.

“The shift to a higher percentage of prime and super-prime customers is a natural consequence of the slight growth in delinquencies. Overall, we are still looking at a very healthy lending market.”

The report also showed that used vehicle financing grew to 41.85% in the super-prime consumer segment, an increase of 5.4% year-over-year.

Used franchised and independent vehicle dealers saw their biggest year-over-year increases in super-prime consumer lending, with 5.91% and 13.8%, respectively.

Other key findings

Total open automotive loan balances reached a record high $1.072 trillion in Q4 2016, up from $987 billion in Q4 2015; however, year-over-year growth is continuing to slow.

Banks lost market share of total vehicle financing, dropping from 35.6% in Q4 2015 to 32.9% in Q4 2016.

Credit unions and captives increased market share of total vehicle financing, growing to 19.1% and 28.4% — up from 18% and 27.8%, respectively.

The average monthly payment for a new vehicle loan was $506, up from $493, while the average new vehicle lease payment was $414, up from $412. The average monthly payment for a used vehicle loan was $364, up from $359.