Auto Finance Market Trended Positively in Q3

As automotive finance professionals continue to navigate through an ever-changing market, third-quarter data shows captives are finding ways to combat higher interest rates—leading to a gain in market share.

For example, Experian’s State of the Automotive Finance Market Report: Q3 2023 found that on average, captives offered consumers the shortest loan terms and lowest interest rate for new vehicles in the quarter—coming in at 65.62 months and 6.14%, respectively. Finance companies fell just behind captives in loan terms at 69.36 months (9.97% interest rate), followed by banks at 70.27 months (8.15% interest rate), and credit unions at 73.16 months (7.13% interest rate).

The lower terms and rates offered by captives resulted in noticeable market share growth in new-vehicle financing—reaching 59.18%, up from 44.74% year-over-year. By comparison, banks went from 25.85% to 22.21% year-over-year, credit unions saw a considerable dip from 24.38% to 13.18%, and finance companies slightly increased from 4.33% to 4.72%.

On the used side, data shows credit unions offered the lowest average interest rate, but finance companies offered the shortest average loan term. Credit unions gave consumers 68.44 months with an interest rate of 8.60%, and finance companies offered 65.41 months—though they had the highest interest rate among lenders at 19.39%. Meanwhile, captives had an average loan term of 69.02 months with an interest rate of 10.20%, and banks had an average term of 68.91 months with a 10.41% rate.

Notably, credit unions continued to lead the used-vehicle market share, coming in at 30.30%, from 32.03% a year earlier. Banks fell just behind at 27.31%, from 28.23% a year earlier, followed by finance companies going from 17.34% to 18.05% year-over-year and captives increasing from 7.62% to 9.60%.

Average Loan Amounts Fall

When looking at the overall finance market, the average new-vehicle loan amount fell to $40,184, from $41,543 a year earlier, and the average loan amount for used vehicles was down $1,517 year-over-year, coming in at $27,167.

Meanwhile, the average interest rate for a new vehicle increased to 7.03%, up from 5.26%, and the average interest rate for a used vehicle went from 9.38% to 11.35%.

Despite interest rates pushing higher, the average monthly payment for new and used vehicles saw only a slight growth. For a new vehicle,, it rose from $701 to $726, and the average monthly payment for a used vehicle was $533, up from $529 last year.

As a result of higher interest rates, new-vehicle shoppers are opting for shorter term loans. Those in the one- to 48-month segment increased to 13.40% from 9.99% a year earlier. Similarly, new-vehicle loans with 49- to 60-month terms rose from 16.50% to 17.16%, and 61- to 72-month terms reached 38.65%, from 36.67% last year. Meanwhile, new-vehicle loans with 73- to 84-month terms declined from 35.11% to 29.15%.

Data found that a shorter term for new-vehicle financing was accompanied by lower interest rates. For instance, one- to 48-month loans offered an average interest rate of 4.03% in the third quarter, and the average rate for 49- to 60-months was 5.67%, followed by 61- to 72-months (7.24%), 73- to 84-months (8.80%), and 85+ months (8.81%).

Prime Still Dominates

Prime and super-prime consumers with a credit score between 661 and 850 made up over 68% of total financing, with consumers shifting into the super-prime space. For example, prime borrowers went from 47.43% last year to 45.90% this quarter, and super-prime grew from 19.16% to 22.82%.

As shoppers continue to show interest in shorter terms, it’s important for professionals in the automotive finance space to stay up-to-date on the latest trends in order to help consumers who are searching for a vehicle that fits within their budgets.

Originally posted on Auto Dealer Today