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Experian: Americans Borrow Record Amounts for Auto Purchases in Q1

May 31, 2018

By Gregory Arroyo

SCHAUMBURG, Ill. — The expectation is that new-vehicle sales will continue their downward trend. Experian’s State of the Automotive Finance Market for the first quarter may reveal the reason.

According to the report, loan amounts, monthly payments and interest rates for new vehicles continue to rise, with the average amount financed on a new vehicle increasing $921 form the year-ago quarter to a record $31,455. The average monthly payment on a new vehicle also hit a new record, increasing $15 from the prior-year period to $523. The average interest rate for a new vehicle in the first quarter was 5.17%.

"The dream of owning a new vehicle is becoming more elusive to the average American,” said Melinda Zabritski, Experian's senior director of automotive financial solutions. "To reverse the trend, dealers and lenders need to better understand the data and explore different options to make new vehicle ownership accessible and appealing."

The report also shows that loan terms for new vehicles have also increased, climbing just above 69 months during the quarter. While 72-month loans remain the most common loan term, more new loans have spilled into the 85- to 96-month bucket.

The population segments most impacted, according to Experian, are subprime and deep subprime consumers, with the percentage of new-vehicle loans made to consumers who fall in those credit spectrums falling 8.4% and 14.1%, respectively. Conversely, the percentage of new-vehicle loans extended to consumers with prime and superprime credit climbing to 73.4% — the highest first quarter level since 2012 and a sign that some finance sources have become more risk-averse.

Despite those increases and the reduction of credit extended to riskier borrowers, first-quarter data reveals a strong and improving auto finance market. The percentage of loans 30 days delinquent, for instance, dropped 3.1% from the year-ago period to 1.90%, while 60-day delinquencies remained flat at 0.67%.

"Traditionally, lenders' risk tolerance has swung back and forth like a pendulum, and right now we're seeing a more risk-averse side. But if payments continue to improve, we could see credit standards loosen," Zabritski said. "The more insight lenders have into consumer credit behavior, the better decisions they can make."

According to the report, outstanding auto loan balances reached a record high of $1.108 trillion, with credit unions showing the highest growth in terms of market share. The segment grew its share 6.9% from a year ago to 21.3%.

The average credit score for a new-vehicle loan during the quarter rose to 716, while the average credit score for a used-vehicle loan rose to 655. Additionally, the average amount financed for a used vehicle reached a new record high of $19,536.

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