In Search of Lower Interest Rates, Some New Vehicle Shoppers Opted for Shorter Loan Terms in Q1 2023
01 Juin 2023 - 3:30PM
Business Wire
New Experian report shows prime and super prime
consumers returning to the used vehicle market
To offset rising interest rates, some vehicle shoppers opted for
shorter term loans in the first quarter of 2023. According to
Experian’s State of the Automotive Finance Market Report: Q1 2023,
the average loan term for a new vehicle for near prime, prime and
super prime consumers decreased by as much as one month.
With the average interest rate for a new vehicle reaching 6.58%
in Q1 2023, up from 4.10% the previous year, much of the growth in
shorter term loans was experienced in the 1- to 48-month segment
(where it increased from 9.53% in Q1 2022 to 12.47% in Q1 2023).
Similarly, the percentage of new vehicle loans with 49- to 60-month
loan terms increased from 16.55% to 17.37% over the same period.
Meanwhile, the percentage of new vehicle loans with 73- to 84-month
loan terms decreased from 35.56% to 31.56%.
“Oftentimes when consumers shop for a vehicle the main priority
is securing a low monthly payment, but it’s also important to
assess the total cost of the loan, particularly amid rising
interest rates and vehicle prices,” said Melinda Zabritski,
Experian’s senior director of automotive financial solutions.
“While shorter term loans are usually accompanied by lower interest
rates, right now OEMs seem to be offering additional incentives on
shorter term loans, which is driving much of the growth in the
48-month segment.”
Prime and super prime consumers returning to used
vehicles
Increases in average vehicle loan amounts continued to taper
off, and in some cases fell, in Q1 2023. The average new vehicle
loan amount ($40,851) only increased $1,213 from a year ago,
compared to the $4,255 increase from Q1 2021 to Q1 2022. The
average used vehicle loan amount ($26,420) decreased $1,590 from
the previous year.
Despite the increase in the average new vehicle loan amount
continuing to level out, many prime and super prime consumers
returned to the used vehicle market in Q1 2023. Prime consumers
made up 42.41% of used vehicle financing during the quarter, up
from 40.97% the previous year, while the percentage of super prime
consumers increased from 11.43% to 13.60% over the same period.
“The industry continues to keep a watchful eye on some of the
inventory challenges and rising vehicle prices, as it’s impacted
consumer purchasing behavior,” said Zabritski. “We’re seeing
consumers bring more cash and trade-in value to the transaction in
hopes of minimizing the amount of interest they’d have to pay on
their loans. Additionally, with the combination of fewer new
vehicles on dealership lots and high prices, in-market consumers
are choosing used vehicles as another way to control vehicle
costs.”
Additional findings from Q1 2023:
- Outstanding loan balances grew 8.40% year-over-year, reaching
$1.4 trillion.
- The percentage of new vehicles with financing in Q1 2023 was
79.35%, down from 84.80% the previous year, while the percentage of
used vehicles with financing was 40.41%, down from 41.83% over the
same period.
- Captives (26.59%) secured the largest share of total financing
in Q1 2023, followed by banks (26.03%), credit unions (24.53%),
finance companies (12.11%) and BHPH/others (10.74%).
- The average monthly payment for a new vehicle was $725, up from
$650 the previous year, while the average monthly payment for a
used vehicle was $516, up from $505 over the same period.
- Thirty-day delinquencies reached 1.89%, up from 1.60% a year
ago, while 60-day delinquencies increased from 0.62% to 0.76% over
the same time frame.
To learn more, watch the entire State of the Automotive Finance
Market: Q1 2023 presentation.
About Experian
Experian is the world’s leading global information services
company. During life’s big moments – from buying a home or a car,
to sending a child to college, to growing a business by connecting
with new customers – we empower consumers and our clients to manage
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Learn more at www.experianplc.com or visit our global content
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and company names mentioned herein are the property of their
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Jordan Takeyama Experian Public Relations 1 951
733 8768 jordan.takeyama@experian.com
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