Experian: Q4 Deep Subprime Volume Increases as New-Car Terms Reach All-Time High

March 06, 2013

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SCHAUMBURG, Ill. — As average loan terms for a new vehicle in the fourth quarter jumped to an all-time high, Experian Automotive also discovered the amount of financing for deep subprime buyers climbed significantly, too.

Experian said the average new-vehicle contract moved to 65 months, up from 63 months in Q4 of 2011. Average terms for used vehicles stayed flat at 60 months, according to the company's Q4 State of the Automotive Finance Market analysis.

In other findings Experian will delve into later today during a quarterly webinar, analysts determined new-model financing for deep subprime buyers — consumers with credit scores below 550 — soared 30.9 percent higher year-over-year. On the used-vehicle side, the deep subprime increase wasn't quite as much (6.5 percent) but still well more than all other credit segments combined.

The report showed that the average loan amount for a new vehicle was $26,691 in Q4, up $272 from the same period a year earlier. The average used-vehicle loan was $17,629 in the fourth quarter, up $239 year-over-year.

However, while consumers are taking out larger loans, lower interest rates and longer loan terms for new vehicles helped bring down the average monthly payments.

For example, the average interest rate for a new vehicle loan in the fourth quarter dropped to 4.36 percent from 4.52 percent a year earlier. Meanwhile the average interest rate for a used-vehicle loan dropped to 8.48 percent from 8.67 percent.

Additionally, the average monthly payment for a new vehicle dropped from $468 in Q4 2011 to $460 in Q4 2012.

As mentioned, Experian highlighted that more consumers also were able to obtain financing in the fourth quarter as average credit scores for both new and used vehicles dropped.

For new vehicle loans, the average consumer credit score was 755 in the fourth quarter, down six points year-over-year. For used vehicle loans, the average consumer credit score dropped to 665, down five points from Q4 of 2011.

In other findings from the fourth quarter report:

—Automotive loans for new vehicles with terms from 73 to 84 months increased by 19.4 percent over Q4 2011

—New lease share of new financing increased to 24.79 percent, up from 10.45 percent in Q4 2011

—The total subprime market for all new vehicle financing increased by 9.7 percent to 24.77 percent, up from 22.59 percent in Q4 2011

—The total subprime market for all used vehicle financing increased by 3.4 percent to 55.4 percent, up from 53.58 percent in Q4 2011

—Buy-here, pay-here stores and credit unions showed the strongest market share growth of 4.3 percent and 3.9 percent for overall automotive loans

—Banks have the highest market share of automotive loans at 41.2 percent

"Overall, Q4 2012 was a very favorable time for consumers to buy a new or used vehicle in terms of overall monthly payments," said Melinda Zabritski, director of automotive credit for Experian Automotive.

"Lower interest rates and longer loan terms made it easier for consumers to finance a vehicle while keeping their payments affordable," Zabritski continued. "This, combined with the fact that more vehicle loans went to consumers with credit outside of prime, portends a vital and healthy automotive market."

Experian's quarterly credit trend analysis features market reporting data and analysis from its AutoCount Risk Report, which analyzes automotive lending markets based on a uniform measurement of credit quality that segments markets by geography, credit score and vehicle registrations, among other factors.

The analysis also incorporates data from the Experian-Oliver Wyman Market Intelligence Reports, which provide topical, quarterly analysis, peer benchmarking options and commentary on key issues facing the financial services industry.

Editor's Note: Watch for more quarterly analysis from Experian Automotive, including the rundown of top 20 lenders, in future installments of SubPrime News Update.

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