Consumers Choosing Used Vehicle Financing Surpassed 50%

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SYDNEY, Australia – Prime consumers choosing used vehicle financing makes up more than 50% of the total car loan applicants.

The car finance market shows increasing growth continuously, marking a massive total loan or around $1.229 trillion. And based on the State of the Automotive Finance Market Report for the fourth quarter of 2019, the rate of prime consumers opting to apply for financing for used cars continues to go up.

According to the recent report from Experian, prime consumers financing used cars has recorded more than 50% of the total number of loan applicants. The latest figure marks the highest percentage for the fourth quarter of every year since 2009.

Also, the used car financing recorded the highest year-on-year increase when it comes to super-prime consumers. The figure significantly increased to 13.29% for the last quarter in 2019 from the recorded 12.55% for the fourth quarter in 2018.

The rising trends of consumers opting towards used car financing follows the uptrend from the previous quarter last year as well.

The research conducted by Experian shows that the majority of prime consumers are opting for used vehicle financing for a wide variety of car types. Based on the report, among the most popular vehicle types taken using used car loans include entry-level CUVs (crossover utility vehicles) and full-sized pickup trucks. However, among the selections for prime consumers also include mid-size and small economy vehicles.

According to the fourth quarter report for 2019, around 15.09% of used car loans were to finance full-size pickup trucks, with entry-level CUVs following not far behind at accounting for 15.07% of the total used vehicle financing.

The senior director at the automotive financial solutions division at Experian, Melinda Zabritski, said that the preferences of a lot of consumers shifted to more expensive cars in recent years. She also explained that during that same period, most consumers have become more aware of their current financial standing as well. Ms. Zabritski further stated that with consumers becoming conscious of their financial health, it made them mindful when buying cars. Thus, the increase in used vehicle financing, she added.

The Experian senior director explained that for most consumers, a used vehicle is the best option when it comes to their budget. However, they often need to compromise the features they prefer to have in a car.

Meanwhile, used car loans aren’t the only section in the lending market that has seen massive growth. The rate of new loans has gone up as well. The new vehicle loans for prime consumers in the fourth quarter last year made up of around 72% of the total car financing. And with a rapidly increasing number of loans going prime, the average credit scores have also increased steadily during the same period. The average credit scores for new car financing has now reached 719 in the fourth quarter of 2019, with an average of 661 for used car loans.

Overall, the vehicle financing market continues to thrive with the average loan amount for cars in the fourth quarter of 2019 going up as well. The average loan price for new vehicles in the quarter increased to $32,797, while there was $20,554 for used cars.

However, the delinquency rates for the period remained flat despite the rise in average loan amounts. The 30-day delinquency rate is at 2.31%, while the 6—day delinquency rate is around 0.79%. Furthermore, the average monthly payments increased, although the rise stayed modest at best. For the YoY increase, the average monthly loan payment is at $554 for new vehicles and $393 for used cars, going up by $9 and $6, respectively.

The modest upsurge in monthly loan payments was mainly due to the decline in average interest rates in the fourth quarter of 2019. The average loan rate for used cars in the period went down moderately to 9.49% from 9.59% for the same period in 2018. Meanwhile, the average loan rate for new vehicles declined sharply to 5.76%  from 6.13% during the same time in the previous year.

According to Ms. Zabritski, the recent figures shows a couple of positive trends that depicts affordability in the market, particularly the lower average interest rates and mostly unchanged delinquencies. She further stated that the trend is likely to continue moving forward. Based on the findings, she also said that consumers are becoming more able to manage their car financing well, which indicates a more stable industry.

Based on the same Q4 2019 report, the number of consumers opting to lease vehicles instead of buying one has also gone up. Compared to 28.76% recorded in the fourth quarter of 2018, loans used to rent new cars increased to 29.92%.

Meanwhile, subprime loans for the last quarter of 2019 declined from the recorded 21.88% for the same time in the previous year to its new 21.69%. Banks and other lenders have also remained to get their market share for car loans going up as well at 32.74% currently from the previous year’s 30.72%.

Meanwhile, the market stayed dominated by longer loan terms. The report shows an increase to 40.5% for the 61- to 72-month segments for new car financing, while for the 73- to 84-month parts increased to 30.5% for the same period. Based on the research, the average cost difference for monthly loan payments to leases is around $93.

Meanwhile, the vehicles market in Australia for 2019 recorded a significant decrease, mirroring the wary economic environment for the country. The total annual vehicle sales in the country last year were registered at 1,062,867, dropping by around 7.8% from the 1,153,111 during the previous year. Out of the total sales, Toyota amounted for a 19.9% share in sales while Holden the 4.2%, signing its ten consecutive declines of car sales. New vehicle sales in 2019 for passenger cars dropped by 16.5% from the previous year, while sales of new commercial vehicles and heavy commercial vehicles also went down by 5.2% and 8.3%, respectively. Meanwhile, the total number of sales of new SUVs increased by 5.9% in December 2019 compared to the same month in 2018. However, the segment still recorded a decline of 2.4% for the entire 2019.

A recent Australia New Vehicles Sales data also shows the total vehicle financing in the country declined to 71,731 in January 2020 from the recorded total of 84,239 car sales in December 2019.

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