When consumers are looking to get a vehicle, their credit score can play an important role in the amount of interest they pay every month. In fact, credit tiers—among other factors—can typically result in a notable difference as it pertains to the average interest loan rate for new and used vehicles.
According to Experian’s State of the Automotive Finance Market Report: Q2 2022, the average new vehicle interest loan rate for consumers with a credit score between 501 and 600, also referred to as subprime, was 9.75%—compared to prime consumers with a credit score between 661 and 780, who had an average new vehicle interest loan rate of 4.03% this quarter.
On the used side, the average interest loan rate for subprime consumers in Q2 2022 was 16.85%, while the average interest loan rate for prime consumers was 5.53% in the same time frame.
The good news is that it seems consumers are actively managing and prioritizing their credit, which has resulted in the overall consumer credit scores shifting more prime. In Q2 2022, the average credit score for new vehicles increased to 738, up from 732 in Q2 2021 and the average credit score for used vehicles went from 666 to 675 in the same time frame.
As consumers search for the most budget-friendly option, it is important for them to understand how their credit score can affect monthly vehicle payments. Thankfully, recent innovations have enabled new ways for lenders and dealers to help educate consumers about tools that can potentially increase their score or establish a credit file if they don’t have one.
For instance, Experian Boost and Experian Go are designed to do both of these things—creating free resources to help paint a more holistic picture of a consumer’s financial health and potentially qualify for better loan terms.
Vehicle finance options based on credit tiers
While overall average monthly payments for new and used vehicles continue to increase, there’s still an opportunity for consumers to lower their average monthly payment based on the credit tier in which they fall. For example, the overall average monthly payment for new vehicles in Q2 2022 was $667, from $582 the previous year—though, the average monthly payment for a new vehicle in the prime tier was $673 this quarter, compared to $692 for subprime consumers.
Taking a deeper dive into other financing options—the overall average monthly payment for used vehicles went from $440 in Q2 2021 to $515 in Q2 2022. Meanwhile, prime consumers had an average monthly payment of $508 for a used vehicle and subprime consumers had an average monthly payment of $531 this quarter.
Building and maintaining a good credit score can have a positive impact when consumers are looking for vehicles that fit within their budget—making it important for lenders and dealers to understand all of the options available to help consumers ensure they find the best approach that caters to their financial needs.
To learn more about credit tiers and other automotive finance trends, watch the entire State of the Automotive Finance Market Report: Q2 2022 presentation on demand.