Though affordability remains a concern in the automotive industry, Experian found consumers with strong credit are shifting away from used vehicles, back into financing new vehicles. According to Experian’s Q4 2020 State of the Automotive Finance Market report, 44% percent of super prime consumers selected used vehicles in Q4 2020, down from 47.03% in Q4 2019. Similarly, 60.38% of prime consumers chose used, compared to 63.75% during the same period last year.
“The events of 2020 disrupted the automotive industry and we’ve seen some consumers shift away from patterns that have been cemented over previous quarters such as opting for used vehicles,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions. “While we can likely attribute some of the change to stimulus checks, carry-over incentives and tight inventory, we find ourselves in uncharted territory. Leveraging data to better understand patterns and trends will help lenders and dealers make the most strategic decisions in the days to come.”
Overall, Experian observed similar trends and patterns to previous quarters. Total originations for prime and super prime consumers increased in Q4 2020, reaching 44.24% and 22.13%, respectively. Conversely, total originations were down for subprime segments: subprime originations made up 14.35% and deep subprime dipped below 2% for the first time at 1.98%.
Electric and hybrid vehicles grow share of financing
Electric and hybrid vehicles have steadily gained popularity in recent years. In Q4 2016, electric and hybrid vehicles made up less than 3% of financing, but that has more than doubled in the last five years. In Q4 2020, electric and hybrid vehicles represented 6.72% of vehicle financing.
Taking a closer look at what is being financed, Toyota leads with the greatest market share of electric and hybrid vehicles, at 38.57%, followed by Tesla at 25.82%. Rounding out the top five are Honda (8.4%), Lexus (5.47%) and Ford (3.72%). The Tesla Model Y was the most popular electric or hybrid model financed in Q4 2020, at 13.3%, with the RAV4 coming in at number two at 11.19%.
While electric vehicles tend to have a higher average monthly payment than hybrid vehicles, both saw slight increases in Q4 2020. The average monthly payment for electric vehicles increased from $671 in Q4 2019 to $689 in Q4 2020, while hybrids increased from $509 to $529 over the same period.
Average loan amounts and monthly payments continue to rise
Overall, average vehicle loan amounts and monthly payments continue to rise, likely driven by consumers continued preference for larger vehicles such as pickups and SUVs. In fact, more than 50% of new vehicles financed in Q4 2020 were small and mid-sized SUVs.
The average loan amount for a new vehicle increased nearly $2,000 year-over-year to reach $35,228 in Q4 2020, while the average monthly payment increased $13 to $576 over the same period. Similarly, the average loan amount for used vehicles grew from $20,824 to $22,467 year-over-year, while average monthly payments increased $18 to surpass $400 for the first time, reaching $413 in Q4 2020.
“With the increases in average loan amounts and payments, affordability will continue to be an important topic to pay attention to, particularly as market conditions continue to develop in 2021,” Zabritski continued. “To keep the industry moving forward, lenders and dealers need to rely on data to ensure that they have the right options to fit consumers’ needs.”
Additional findings for Q4 2020:
• Total open automotive loan balances grew 2.8% year-over-year, reaching $1.27 trillion in Q4 2020.
• Average loan terms continued to increase for both new and used vehicles in Q4 2020, at 69.68 months for new vehicles and 65.58 for used vehicles.
• Interest rates dropped in Q4 2020. The average interest rate for a new vehicle loan dropped from 5.25% in Q4 2019 to 4.31% in Q4 2020, while the average interest rate for used vehicles dropped from 9.05% to 8.43% in the same time frame.
• Captive lenders saw the largest amount of growth in Q4 2020, from 26.22 % in Q4 2019 to 30.14% in Q4 2020.
To view the entire Q4 2020 State of the Automotive Finance Market report webinar, visit https://www.experian.com/automotive/automotive-webinars.html.
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