Credit scores improve among auto buyers and lessees in Q2 2017

Buyers and lessees of both new and used vehicles showed improved credit scores in the second quarter of 2017, according to the credit bureau Experian. However, the quarter also saw the continuing trend of increasing loan balances, higher monthly payments, and longer loan terms.

In its report on the United States automotive market for April through June, Experian found that the average credit score for a new transaction was 714. This reversed a year-over-year decrease in the average credit score on new sales, which had occurred in the previous three years. The average score for a used transaction has improved gradually as buyers with high scores make up an increasing share of these sales, and in the second quarter of 2017 it stood at 652.

The average new purchase or lease during the quarter as $30,234, up $338 from the previous year. The typical used vehicle transaction was $19,189, a year-over-year increase of $81.

On average, monthly payments on a new vehicle purchase were $504 – $5 more than the second quarter of 2016. Lease payments were up $8 to $412. Used vehicle payments were more stable, increasing by only $1 to $365 a month. The average new vehicle loan had an interest rate of 5.2 percent, while used vehicles typically had a rate of 9.02 percent.

While most leases continued to hold steady at three years, longer loan terms have become more common as buyers try to keep monthly payments affordable. The average loan for a new vehicle purchase in the second quarter of 2017 had a term of 68.8 months, up half a month from the previous year. The typical used vehicle loan term was 63.98 months, up one-quarter of a month.

Just over 40 percent of new vehicle loans had a term of 61 to 72 months, while 32.5 percent had a term of 73 to 84 months and 18.55 percent had a shorter term of 49 to 60 months. A total of 1.25 percent of new vehicle loans had a term of 85 to 96 months.

Used vehicle loans also tended to have a term of 61 to 72 months, with 41.59 percent falling into this category. A total of 23.05 percent had a term of 49 to 60 months, 17.69 percent had a term of 73 to 84 months, and 9.99 percent had a term of 37 to 48 months.

The outstanding balance on automotive loans continued to climb, reaching $1.1 trillion in the second quarter of 2017. This was up from $1.03 trillion in the second quarter of 2016 and $932 billion in the second quarter of 2015.

Buyers and lessees were slightly less likely to use financing. A total of 85.9 percent of used vehicle transactions required financing, down from 86.5 percent in the second quarter of 2016. The share of used vehicle transactions requiring financing fell from 55.9 percent to 53.6 percent.

Leasing remained a popular choice, but became slightly less common in the second quarter of 2017. A total of 30.83 percent of new vehicle transactions were leases, down from 31.44 percent in the previous year. Only 3.61 percent of used vehicle transactions used leasing, down from 3.71 percent.

A total of 77.12 percent of new leases went to borrowers with super prime credit scores (781-850) or prime credit scores (661-780). This share was up from 74.92 percent in the second quarter of 2016. The share of buyers and lessees with nonprime scores (601-660) dropped from 17.17 percent to 15.85 percent. Those with subprime scores (501-600) made up 6.59 percent of new leases, down from 7.41 percent.

Experian noted that subprime borrowers made up a near record low of auto loans during the second quarter of the year. A total of 24.55 percent of buyers had subprime or deep subprime (300-600) credit scores, down from 25.52 percent in the previous year. The share of prime and super prime buyers rose from 53.6 percent to 55.1 percent, while the share of nonprime buyers dropped from 20.88 percent to 20.35 percent.

Borrowers with higher credit scores were also making up an increasing share of used vehicle sales. A record high of 43.26 percent of super prime consumers chose to buy a used vehicle. This risk tier accounted for 11.86 percent of used vehicle loan transactions, up from 10.75 percent in the previous year.

A total of 2.2 percent of auto loans and leases were behind by 30 days or more during the second quarter of 2017. The 60-day delinquency rate was 0.67 percent.