The automotive market continues to evolve. Hit with challenges like the inventory shortage, the response has been dynamic, as lenders and dealers look for creative ways to serve their customers.
Experian’s State of the Automotive Finance Market Report: Q3 2022 found that consumers with credit scores between 300 and 660—also considered as the nonprime segments—are continuing to opt for used vehicles rather than new. In addition to that, consumers overall are preferring larger vehicles such as SUVs over sedans.
In Q3 2022, used vehicles comprised 61.68% of total vehicle financing, an increase from 59.66% the previous year. With used vehicles typically having a higher volume and monthly payments that are considerably lower than new vehicles, it’s not out of the ordinary for used to make up a larger portion of automotive financing.
For example, the average monthly payment for a used vehicle went from $472 in Q3 2021 to $525 in Q3 2022. In comparison, the average monthly payment for a new vehicle was $700 this quarter, an increase from $618 this time last year.
In Q3 2022, the used vehicle loan amount increased 8.59% year-over-year, a significantly lower increase from Q3 2021, when average loan amounts jumped 21.37% year-over-year. This is certainly a positive trend for consumers who are in the market for a used vehicle and could also signal the finance market normalizing, with used vehicle values increasing at a more expected rate.
Larger vehicles dominate financing share
When looking at what consumers are financing, SUVs have comprised the majority of financing for quite some time. In Q3 2022, SUVs made up 60.40% of financing, an increase from 58.03% in Q3 2021, while full-size pickup trucks grew from 15.84% to 17.19% year-over-year. In comparison, sedans decreased from 20.38% in Q3 2021 to 17.61% in Q3 2022.
Larger vehicles sustained dominance in the automotive industry is partly due to the rise of crossover vehicles, which consumers appreciate because of the additional cargo space without completely sacrificing fuel efficiency.
While it appears that things may be leveling out in the automotive finance market, it is important to stay close to the data and trends to better understand the evolving marketplace. The automotive industry continues to be ever-changing, and lenders and dealers who leverage data-driven decision making will be best positioned to manage any future changes.
To learn more about automotive finance trends, watch the entire State of the Automotive Finance Market: Q3 2022 presentation on demand.