Experian’s latest State of the Automotive Finance Market Report reveals that consumers are opting for shorter-term loans, and captives have regained the majority share of total vehicle financing. Captives accounted for 29.05% of the total vehicle financing market in the US, surpassing banks and credit unions. This is an increase from 22.15% the previous year. Banks made up 24.84% of the market, followed by credit unions (22.49%), finance companies (13.09%), and buy-here-pay-here/others (10.52%).
The shift towards captives was even more prominent in new vehicle financing, where they held 58.47% of the market, up from 46.80% in Q2 2022. Banks accounted for 22.25% of new vehicle financing, while credit unions, finance companies, and buy-here-pay-here/others held smaller shares.
Melinda Zabritski, Experian’s senior director of automotive financial solutions, explained that the resurgence of captives can be attributed to increased incentives in the market, as well as consumers gravitating towards new vehicles. Zabritski emphasized the importance for lenders and dealers to understand consumers’ buying preferences to help them find vehicles that fit their budgets.
The report also highlighted a trend of consumers choosing shorter-term loans amid rising interest rates. New vehicle loans with terms of 1 to 48 months increased from 9.53% in Q2 2022 to 14.58% in Q2 2023. A similar trend was observed in used vehicle loans, with 1- to 48-month terms accounting for 11.31% of loans in Q2 2023.
As a result of these shorter loan terms, the average monthly payment for new and used vehicles increased. The average monthly payment for a new vehicle rose to $729 in Q2 2023, up from $672 in Q2 2022. The average monthly payment for a used vehicle increased slightly from $519 last year to $528 this quarter.
Interest rates also saw an upward trend. The average interest rate for a new vehicle rose to 6.63% in Q2 2023, compared to 4.60% the previous year. For used vehicles, the average interest rate increased to 11.38% this quarter.
Although leasing experienced a significant decline in 2020, it saw a slight uptick in Q2 2023, reaching 21.29% compared to 19.92% last year. Notably, the Tesla Model 3 made its first appearance in the top 10 leased models, representing 1.79% of leased vehicles.
Zabritski emphasized the importance of monitoring consumer purchase trends and understanding the difference in average prices between loans and leases. This understanding can help automotive professionals guide consumers towards more budget-friendly options.
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