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Subprime Originations Hit Record Low in Q3

Subprime financing fell to its lowest point since 2012, while prime grabbed the lion’s share of the auto finance space in the third quarter. Even the used-vehicle market has gone prime, with buyers outside of prime accounting for just a third of the market.

by Staff
December 7, 2017
3 min to read


COSTA MESA, Calif. — Total open auto loan balances in the third quarter grew 6.8% from a year ago to $1.121 trillion, but the big story coming out of the auto finance market during the period was the share of subprime financing falling to its lowest point since 2012, according to Experian Automotive.

Conversely, financing extended to car buyers with prime credit grabbed the lion’s share of the auto finance space during the period, accounting for 40.9% of the market. Registering the biggest increase, however, was superprime, which grew its share was from 19.42% in the year-ago quarter to 20.16%.

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“For some time now, the story has been focused incorrectly on the rise in subprime lending. But the data over the last several quarters has shown that the entire market is growing, not just subprime,” said Melinda Zabritski, senior director of automotive finance for Experian. “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.”

The third quarter also saw loan terms continue to stretch, with the average term for new-vehicle financing reaching an all-time high of 69 months. Most borrowers taking advantage of longer terms, however, fell into the prime segments, with buyers outside of prime accounting for only 10.74% of the new-vehicle market — a 4.3% decrease from a year ago.

The move toward prime drove up the average credit score for new-vehicle financing two points from a year ago to 716. Even the used-vehicle financing space registered an increase in its average credit score, which increased four points from a year ago to 659.

The used-vehicle space was indeed dominated by prime and superprime buyers, accounting for 48.83% of that market. Buyers with credit outside of prime accounted for just a third of the market (31.34%), with deep subprime’s share falling by 9.2% from a year ago to an all-time low of 4.64%.

“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,” Zabritski said.

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Past Experian reports have shown that consumers often choose leasing to reduce monthly payments. This quarter’s report, however, showed a slight decrease in leasing across all risk categories. The only exception was the super-prime category, which increased by 1.8%.

The average amount financed for new vehicles in the third quarter was $30,329, up $291 from the year-ago quarter. For used vehicles, the average amount financed increased by $56 from a year ago to $19,291. As for monthly payments, the average new-vehicle payment increased by $6 from a year ago to $502. For used, the average payment increased by $3 to $365 per month.

Lease payments were also on the rise, increasing by $6 from a year ago to $412.

As for lending segments, banks continued to lead the way in terms of market share despite their share falling 6.3% from a year ago to 32.9%. Credit unions and captive lenders increased their share 6.9% and 35.1% from a year ago to 21% and 29.8%, respectively. Finance companies saw their share fall from 10.7% in the year-ago period to 10.2%.

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