The average vehicle loan term has decreased as interest rates rise, according to Experian’s State of the Automotive Finance Market Report.
The late-August report found that the average interest rate for new vehicles increased from 4.6% in the second quarter of 2022 to 6.6% in Q2 2023. Similarly, the average interest rate for used vehicles rose from 8.8% to 11.4% year-over-year.
With rising interest rates, the total number of vehicles with financing has decreased, as has the average loan term. Nearly 80% of new vehicles and 38.4% of used vehicles were financed in Q2 2023, down from 83.5% and 41.5%, respectively, in 2022.
The average new-vehicle loan amount increased $70 year-over-year, reaching $40,657, while the average used-vehicle loan amount decreased $1,744 to $26,863. However, the average monthly payment increased for both new ($729) and used ($528) vehicles.
The percentage of new vehicles that are leased rose from 19.9% in Q2 2022 to 21.3% in Q2 2023, still well below 2021’s 27.7%.
“While the industry continues to shift, it’s important for automotive professionals to watch the consumer purchase trends as they make informed decisions,” says Melinda Zabritski, Experian’s senior director of automotive financial solutions. “With shorter loan terms and the average price difference from loan to lease, it’s not uncommon to see consumers lean toward more budget-friendly options.”
Captive finance companies, wholly-owned subsidiaries of automakers that provide financial services, regained total vehicle financing market share. They had 29.1% of market share in Q2 2023, up from 2022 when their 22.2% share trailed banks (27.8%) and credit unions (26%). This year, banks and credit unions had 24.8% and 22.5% of market share, respectively.
Experian’s report also found that: