Auto credit worthiness improves

Auto credit worthiness improves

Sub-prime auto lending hits 5-year low, super-prime borrowing grows quickly.

December 8, 2017
By Robert Schoenberger

Cleveland, Ohio – The credit quality of car buyers improved significantly in the third quarter of 2017 with borrowers with less-than-prime credit falling to their lowest levels since 2012.

Throughout the recovery in auto sales since the 2009 recession, a small group of financial alarmists has been pointing to increases in sub-prime auto lending as a sign that automotive market growth was a bubble. That reading of the numbers ignored the fact that sub-prime lending collapsed to nearly nothing during the Great Recession, and the rapid increases in 2010 and beyond were a return to historically normal levels.

A report released by credit monitoring company Experian shows that concerns about buyers with poor credit have been overblown.

“For some time now, the story has been focused incorrectly on the rise in subprime lending. But the data over the last several quarters has shown that the entire market is growing, not just subprime,” says Melinda Zabritski, senior director of automotive finance for Experian.

In Q3, super-prime borrowers, those with the highest credit ratings, made up more than 20% of the market, the largest increase from any credit segment. Prime borrowers, those with decent-to-good credit, made up nearly 41% of the market. Those well less-than-prime credit (credit score of 600 or lower) made up about 11% of the market, a more than 4% decline.

“The market turning more prime is an encouraging trend,” Zabritski says. “It indicates that industry professionals are using data and analytics as part of the lending process, and consumers are taking a more active role in managing their credit before buying a car.”

Other highlights from the Q3 report include:

  • New vehicle loan duration: 69 months (all-time high)
  • Average new vehicle loan: $30,329, up $291 from Q3 2016
  • Average financing interest rate: 5.1%
  • Average monthly loan payment: $502, up $6
  • Average monthly lease payment: $412, up $6 from
  • Average credit score (loans and leases): 716
  • Total open automotive loan balances: $1.121 trillion, up 6.8%

About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 17 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky.