Experian is countering industry predictions of an imminent auto finance crisis with new research showing the market is gaining strength and stability, with sub-prime originations at a record low.
According to Experian’s latest State of the Automotive Finance Market report, prime consumers grabbed the lion’s share of the total finance market (40.9%), while super-prime buyers showed the largest increase, reaching 20.16% market share.
Conversely, the number of consumers outside prime notably decreased, hitting the lowest total finance market share on record since 2012.
Melinda Zabritski, senior director of automotive finance for Experian, said: “For some time now, the story has been focused incorrectly on the rise in sub-prime lending. But the data over the last several quarters has shown that the entire market is growing, not just sub-prime.
“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.”
Credit quality up
The Q3 report also found that loan terms for new vehicles extended, and credit quality for obtaining a loan on both new and used vehicles notably improved. The average term for new vehicle loans hit an all-time high of 69 months.
While this statistic could trigger an alarm for some market watchers, findings showed that buyers outside prime decreased.
Zabritski said: “It’s clear that affordability is a driving force in a consumer’s decision to finance a vehicle, 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’s buying new or used.”
Past reports have shown that consumers often choose to lease to reduce monthly payments, but this quarter’s report showed a slight decrease in leasing across all risk categories, as more buyers shift to the loan market. The only exception was the super-prime category, which increased slightly (1.8%).
The average amount financed for new vehicles in the third quarter was $30,329, up $291 from Q3 2016. For used vehicles, the average amount financed reached $19,291, an increase of $56 over the previous year.
Experian’s data shows total open automotive loan balances reached $1.121 trillion, up 6.8% from the previous year.
Credit unions and captive lenders increased market share of total vehicle financing, growing to 21% and 29.8% - an increase of 6.9% and 35.1% respectively.
Banks lost market share of total vehicle financing, dropping 6.3 % to reach 32.9% of the market.