If you're gearing up to snag financing for your dream ride, or just keen to stay in the loop about what's hot in the automotive financing scene, you're in the right place! Understanding the ins and outs of this market not only sets you up for a smart vehicle purchase or lease but also gives you a sneak peek into what the future holds. Experian's analysis of first-quarter 2023 data offers a lucid snapshot of the automotive market's state and the trends in financing options. Let's explore these options.
Over 56% of borrowers had a 661 credit score or better for used loans in 2023
Vehicle Financing Trends Over Time
New or used, many people rely on some financing to purchase a vehicle. And those with some money to put down upfront may still opt to take out an auto loan to fund their purchase. Here are the auto financing trends in 2023:
- 79.35% of new cars had vehicle financing
- 40.41% of used cars had vehicle financing
The auto financing trends as of 2022 were as follows:
- 84.80% of new cars had vehicle financing
- 41.83% of used card had vehicle financing
In comparison, here are 2021’s auto financing trends:
- 86.07% of new cars had vehicle financing
- 40.54% of used cars had vehicle financing
As clearly shown, the percentage of used vehicles that were backed by an auto loan remained relatively stable over the years. Meanwhile, there was a significant drop in auto loans for new vehicles over time.
In the first quarter of 2023, 60.98% of all new vehicles with financing were SUVs and station wagons, compared to 17.77% of sedans and 16.51% of pickup trucks. These percentages are similar to the previous year, which saw 60.37% of new SUVs and station wagons, 17.06% of new sedans, and 17.26% of new pickup trucks financed.
Vehicle Leasing Trends Over Time
Leasing a vehicle is a little different from buying one. Financing a car involves taking out a loan and paying it back over time with the intention of owning the vehicle. With leasing, the borrower makes monthly payments on the car, but usually returns it to the dealership after a few years.
Both options have their pros and cons, so it’s essential to consider which works best for you. In any case, here are 2023’s leasing trends in the automotive industry:
- 18.23% of new vehicles were leased
- 11.18% of used vehicles were leased
In comparison, 21.67% of new vehicles were leased in 2022 — approximately 3.44% more. On the other hand, just 10.03% of used vehicles were leased in 2022.
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Typical Auto Loan and Leasing Costs On New Vehicles
Over the past three years, the way auto loan financing looks has changed in terms of the typical loan amount, monthly payment, and rate. Here are the trends for new vehicle financing:
- Q1 2023: The typical auto loan was $40,851 and had a 6.58% average interest rate and an average monthly payment of $725.
- Q1 2022: The average auto loan was $39,638, with a 4.10% average interest rate and a $650 monthly payment.
- Q1 2021: The typical loan was $35,383 with a 4.15% average interest rate and a $577 monthly payment.
Overall, the cost of auto financing has increased significantly over the past several years. Because of this, more people have turned to leasing a vehicle instead of buying one. Even then, the cost of leasing a vehicle has also ticked up. In 2021, the average monthly payment on a leased vehicle was $471. As of this year, it’s $586 — a $115 increase.
Typical Auto Loan Costs: Used
Auto loan financing and leasing costs have also fluctuated since 2021. Here are the typical trends for used vehicle financing:
- Q1 2023: The average auto loan was $26,420 with an 11.17% interest rate and a regular monthly payment of $516.
- Q1 2022: The standard auto loan was $28,010 with an 8.67% interest rate and a $505 monthly payment.
- Q1 2021: The average loan amount was $22,392, with an 8.81% interest rate and a $414 monthly payment.
The typical interest rate increased by 2.36% from 2021 to 2023. The regular monthly payments and loan amounts have also risen, making it more difficult to afford a vehicle.
Borrowers’ Credit Scores and Auto Loan Delinquency Rates
Borrowers’ credit scores fall into the following categories:
- Super prime: 781 to 850
- Prime: 661 to 780
- Nonprime: 601 to 660
- Subprime: 501 to 600
- Deep subprime: 300 to 500
Over 56% of borrowers had a 661 credit score or better for used loans in 2023. In comparison, just 46.97% of borrowers fell into either the prime or super prime ranges in 2018. This shows a positive trend in credit scores and automotive financing.
Despite improved credit scores, auto loan delinquency rates have risen past pre-COVID levels. Approximately 0.76% of loans are 60 days delinquent, as opposed to 0.72% in 2019.
The Bottom Line
While the allure of used vehicles often lies in their more budget-friendly price tags, navigating the landscape to secure an affordable ride and compatible lender can indeed prove to be a challenge. This holds particularly true for individuals with prime credit or below. For this, Lendstart has forged partnerships with auto lenders who specialize in offering competitive rates for used car loans and various automotive expenses. Lendstart is a one-stop destination, providing a comprehensive suite of financial solutions, including a car repair lineup, all conveniently housed under one roof, to get you behind the wheel without breaking the bank.