Report: Despite COVID-19, automotive industry shows positive signs in Q2 2020
The average loan amount for a new vehicle jumps $4,000; however, the average monthly payment remains steady.
“COVID-19 has impacted the industry, but the data shows manufacturers, dealers and lenders have adjusted to the current landscape,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions. “For example, manufacturer incentives have helped new car sales rebound over the past few months. The more the industry can stay on top of the trends, the better positioned they will be to continue to boost sales and navigate the recovery.”
With the option for consumers to take advantage of manufacturer incentives, we’ve seen consumers with strong credit shift back into the new vehicle market, reversing a trend we’ve observed over the past several quarters. Prime and super prime consumers made up 74.96 percent of new vehicle loans in Q2 2020, up from 71.89 percent in Q2 2019. The report also shows that captives made up the largest share of new vehicle financing (31.1 percent), up from 28.6 percent in Q2 2019.
While loan amounts increase, terms extend, keeping payments manageable
The average loan amount for a new vehicle reached $36,072 in Q2 2020, an increase of nearly $4,000 from a year ago—much of the increase appears to be driven by a shift in consumer preference. During the quarter, full-sized pickups became the most popular vehicle segment, making up 16.09 percent, followed closely by small SUVs (14.33 percent)—these vehicles tend to be more expensive. In fact, the average loan amount for a full-sized pickup in Q2 was $46,502. The increase in the average loan amount for a used vehicle was much smaller, up $760 from a year ago, reaching $20,916.
Despite the increases in average loan amounts, the average monthly payments remained fairly steady. The average monthly payment for a new vehicle was $568, an increase of $18 from the previous year, while the average monthly payment for a used vehicle increased $5, bringing it to $397. The limited increase in average monthly payment is likely attributed to the increase in average loan term. The average loan term for a new vehicle was 71.54 months, up from 69.17 in Q2 2019 and the average loan term for a used vehicle was 65.30 months, up from 64.82 months over the same time period.
It’s important to note that the percentage of new loans with loan terms between 85 and 96 months increased from 1.3 percent in Q2 2019 to 4.8 percent—with many of these extended to consumers with prime credit scores (720). In addition, interest rates for new vehicles decreased from 6.27 in Q2 2019 to 5.15 in Q2 2020. Similarly, interest rates for used vehicles decreased from 10.07 to 9.69 during the same time period.
“With vehicle loans becoming more expensive, we’ve seen lenders and consumers find ways to make monthly payments more affordable—relying on lower interest rates and extending loan terms,” continued Zabritski. “Lenders need to minimize risk and find finance options that meet the needs of car shoppers. Ensuring loans are affordable and fit within the consumers’ budgets will be a priority.”
Additional findings for Q2 2020:
- Leasing saw a decrease year-over-year, making up 25.81 percent of new vehicles in Q2 2020, compared to 32.03 percent in Q2 2019.
- Subprime loans made up 22.18 percent of total auto loans, which is an all-time low.
- Hondas are the most commonly leased vehicle make, at 13.55 percent of the market.
- The average credit score for a new vehicle loan increased four points year-over-year, from 717 in Q2 2019 to 721 in Q2 2020. The average score for a used vehicle loan increased one point, from 656 to 657, in the same time frame.
To view the entire Q2 2020 State of the Automotive Finance Market report webinar, visit https://www.experian.com/automotive/automotive-webinars.html.
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