Interest rates for new-car loans were at a record low last quarter, according to Experian Automotive. The rates fell to 4.27%, the lowest rate seen since Experian first started publicly reporting the data in 2008.
Not only did interest rates go down in the third quarter, the average credit score of a new-car loan borrower went down slightly, from 755 in the third quarter of 2012 to 753 last quarter. That change indicates increased access to new-vehicle financing, and consumers capitalized on the low rates and took out larger loans. On average, consumers financed $26,719 for a new car (the most since 2008), up from $25,963 at the same time last year. The average amount financed for used cars also increased year-over-year, from $17,577 to $17,900.
In a news release about the data, Melinda Zabritski, senior director of automotive credit for Experian, noted how the low interest rates make a huge difference for consumers who base their decisions on monthly payments. The average monthly payment didn’t change much in the last year — it was $452 in the third quarter of 2012 and $458 last quarter — but the interest rates and longer payment terms allowed consumers to purchase more expensive vehicles without paying much more. (The average payment terms on a new car increased from 64 to 65 months).
As shown by the changes in the average credit score of borrowers, lenders have been more comfortable taking on higher-risk consumers. In fact, nonprime, subprime and deep subprime loans made up slightly more of both new and used vehicle market share than they did last year, accounting for 26.04% of new loans (up from 24.84%) and 54.95% (up from 54.43%) of used loans.
“The automotive lending market seems to have stabilized in Q3 2013,” Zabritski said in the news release. “Subprime lending is still growing slightly, but is still well below pre-recession levels in the highest risk segments, and its growth rate has slowed considerably. It seems as though lenders are approaching their ceiling for how much risk they are willing to take.”