CHICAGO — While used-vehicle financing has traditionally been associated with nonprime borrowers, a new TransUnion study has found that consumers across the credit spectrum are increasingly evaluating used vehicles as a more practical option. This trend is especially noteworthy among consumers with prime and higher credit scores and is believed to be driven in part by the influx of off-lease vehicles to the marketplace.
The results echoed the findings of a recent Experian report. TransUnion analysts report that, contrary to popular belief, prime and above consumers are making up the majority of used-vehicle finance transactions. From 2016 to 2018, these lower-risk consumers generated 56% of used-vehicle loans.
Citing Edmunds’ most recent Used Car Report, analysts noted that over the past five years, used-vehicle sales have accelerated from 1.3% year-over-year growth in 2014 to 3.1% in 2018. Meanwhile, new-vehicle sales have slowed across all risk tiers, falling to 0.6% year-over-year growth in 2018, down from 5.9% in 2014.
“In 2016, the auto sales dynamic changed as consumer purchases of used vehicles outpaced new vehicle sales,” said Brian Landau, senior vice president and automotive business leader at TransUnion. “Used cars have become an increasingly attractive prospect for both lenders and consumers. Lenders have an opportunity to increase their activity in this segment of the market, as it is more than twice the size of the new vehicle market.”
For prime and above consumers, the vast majority of used car loans were used to finance off-lease vehicles less than four years old. The number of such vehicles grew to 3.4 million in 2018 from 2.0 million in 2014, according to Edmunds. This trend has helped spur demand among consumers, as the average age of a used vehicle at purchase has declined from 4.6 years in 2014 to 4.1 years in 2017.
“Lenders focusing on low-risk consumers have good reason to offer financing in the used car arena,” added Landau. “The increased supply of late model vehicles available in the market makes it easier for lenders to expand their used vehicle finance offerings while still managing their collateral risk exposure.”
To download a copy of the full report, click here.