Average monthly payment hits an all-time high of $503.
Experian Automotive has released its new State of the Automotive Finance Market report which reveals leasing has reached its highest level on record.
According to the company's findings, 31.1 percent of new vehicle transactions during the first quarter of 2016 were leases. Used vehicle leasing, which is less common, also increased 2.1 percent from a year ago.
According to Experian’s senior director of automotive finance, Melinda Zabritski, “The continued rise in new vehicle costs have kept many consumers exploring options to keep their monthly payments affordable." She added, "As long as vehicle prices continue to rise, we can expect leasing rates to grow along with them."
The report also found the average loan amount for a new vehicle reached an all-time high of $30,032. The increase seems to have had an impact on buyers as the average loan term for new vehicles increased to 68 months. The increased loan periods didn't have much effect on monthly payments as the average monthly payment for a new vehicle loan hit an all-time high of $503.
On the topic of interest rates, Experian found new vehicle loans carry an average rate of 4.79 percent. Used car buyers are worse off as the average rate is 7.81 percent for at a franchise dealer and 12.22 percent at independent dealers.
AUTO LEASING HITS HIGHEST LEVEL, SURPASSING 30 PERCENT OF ALL NEW VEHICLE TRANSACTIONS
Average loan amount and monthly payment break records, while average term hits 68 months
Schaumburg, Ill., June 02, 2016 — As the average loan amount and monthly payment for new vehicles continue to trend upward, leasing reached its highest level on record, Experian Automotive announced today. According to its most recent State of the Automotive Finance Market report, leasing accounted for 31.1 percent of all new vehicle transactions during the first quarter of 2016. Additionally, while leasing is still predominately an option for new vehicle financing, used vehicle leasing increased 2.1 percent from a year ago.
“The continued rise in new vehicle costs have kept many consumers exploring options to keep their monthly payments affordable,” said Melinda Zabritski, Experian’s senior director of automotive finance. “As long as vehicle prices continue to rise, we can expect leasing rates to grow along with them. However, consumers need to understand the nuances of their lease agreements and make sure that leasing fits their lifestyle.”
Findings from the report also show an increase in the percentage of prime consumers who shifted to the used vehicle market. In fact, prime borrowers elected to purchase a used vehicle more than 54 percent of the time in Q1 2016, a 4.8 percent increase from the previous year.
However, the opposite is true for the new vehicle finance market. While the percentage of subprime borrowers in the total loan market decreased 1.1 percent, the percentage of subprime borrowers for new vehicles saw a 5.5 percent increase from a year ago.
“The record highs we have seen in vehicle prices also have had a significant impact on the loan market,” continued Zabritski. “For example, the number of prime borrowers who switched to leasing has driven an increase in the percentage of subprime borrowers shown in the new vehicle segment. As a result, we will continue to see consumers view used vehicles, longer-term loans and leasing as a way to keep payments affordable.”
The shifts in risk tier distribution for new and used vehicles also is reflected in average credit scores. The average credit score for a new vehicle loan was 710, down three points from the previous year, while the average credit score for a used vehicle loan was up three points to 645.
Additional insights from the Q1 2016 report:
• The percentage of new vehicles financed was 86.3 percent, up 1.6 percent from a year ago.
• The average loan amount for a new vehicle reached $30,032, an all-time high, while the average loan amounts for used vehicles were $20,723 (franchise dealers) and $16,124 (independent dealers) — both Q1 highs.
• The average loan terms for new vehicles, used vehicles from franchise dealers and used vehicles from independent dealers all increased by one month, reaching 68, 66 and 58 months, respectively.
• The average interest rates were 4.79 percent for a new vehicle loan, 7.81 percent for a used vehicle loan at a franchise dealer and 12.22 percent for a used vehicle loan at an independent dealer.
• Average monthly payments for new vehicle loans reached an all-time high — $503. Average monthly payments for used vehicle loans were $376 at a franchise dealer and $351 at an independent dealer.