Americans are shelling out more than ever to buy new and used cars, on average, however, their also doing a better job of making those monthly loan payments on time, according to Experian.
Experian’s “State of Automotive Finance” report reveals that 30-day delinquencies dropped to 2.11% from 2.2% a year ago, while 60-day delinquencies dropped to 0.64% from 0.67% over the same time period.
“As we monitor the health of the automotive market, delinquencies are one of the most telling metrics. If this downward trend continues, it can be an encouraging sign,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions.
“Moving forward, lenders will want to keep a close eye on car buyers’ payment performance. Understanding these trends and leveraging the power of data helps lenders make the right decisions when analyzing risk.”
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Although buyers are doing a better job of paying for what they bought, there are concerns about how much they’re paying. The average new vehicle loan amounts jumped more than $700 year-over-year to $30,958 in Q2 2018, while used vehicle loan amounts increased $520 to reach $19,708, Experian noted.
Unsurprisingly, new and used vehicle monthly payments hit record highs during the quarter, with the average new monthly payment increasing $20 year-over-year to $525, and the average used monthly payment increasing $13 over the same time period, reaching $378.
The gap between the average new and used car payment widened during the same period to $147, which is the largest gap ever, showing that the plethora of three-year-old used cars available in the market is beginning to impact the value of used vehicles.
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- Outstanding loan balances hit a record high but experienced slowing growth, reaching $1.149 trillion in Q2 2018, up from $1.027 trillion in Q2 2016.
- Leases decreased slightly year-over-year, from 30.83% in Q2 2017 to 30.41% in Q2 2018.
- 72 months remains the most common loan term for both new and used loans.
- Market share for banks dropped to 31.6% in Q2 2018 from 32.3% in Q2 2017.
- Interest rates increased across all loan types, with the exception of used loans in the deep-subprime segment.
Buyers are increasingly seeking lenders outside of the typical captive finance arm option or local bank. Credit unions are seeing an increase in lending activity, according to the report, especially in new vehicle financing (12.9%) and strong growth overall (4.9%), closing in on 21.3% of the market at the end of Q2. The only other lender type to experience growth was captive finance companies, which grew 1.2% during the same time period.
Lenders in general seem less willing to take risks on less-than-ideal buyers. Deep subprime hit an all-time low of 3.54%, compared with 3.98% in Q2 2017. Overall, subprime and deep subprime fell to less than 19% of the loan market. As a result, average credit scores for new and used vehicle financing continue to improve, reaching 715 and 655, respectively.
“Having access to quality credit is something every consumer deserves, regardless of the type of financing used. As the cost of vehicles rises, lenders need to make sure they’re leveraging all available data so they can offer comprehensive financing options to all consumers,” Zabritski said.
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“Consumers can also take steps to make sure they’re financially ready when looking to buy a car. We’re seeing the positive trend of on-time payments, which is just one step toward improving credit scores.”