Millennials were responsible for more than 28% of all retail vehicle sales, according to the J.D. Power 2015 New Auto Shopper Study, and by 2020 experts forecast they will account for more than 40% of purchases. In 2017 Moody’s Analytics reported that young consumers, identified as those 34 and under, had the largest share of auto loan originations in the third quarter at 26 percent.
Millennials are interested in buying cars; however, research by ID Analytics, a leading provider of credit and fraud risk solutions, reveals they may have trouble obtaining financing due to lack of credit history. ID Analytics found that while 39% of auto finance applications were from millennials, they have the lowest booking rates across all generations studied.
The majority of the thin-file population from the auto finance industry is made up of millennials according to the ID Analytics research study, which is confirmed by a 2015 Consumer Financial Protection Bureau white paper on “credit invisibles.”
Meanwhile, the Federal Reserve Bank of New York reports U.S. car loan delinquencies as the highest in eight years, growing to $23.27 billion in 2017, which has caused some auto lenders to tighten their lending standards. If lenders can’t see the entire picture when it comes to millennials and credit, they could be missing out on valuable customers with tremendous buying power. For example, Accenture reports that millennials spend approximately $600 billion on retail purchases annually and predicts that amount will increase to more than $1.4 trillion annually as soon as 2020.
Here’s why millennials deserve a second look. In other industries, we’ve observed millennials outperforming their counterparts from different generations who represent the same risk according to traditional credit data.
How can an auto lender understand the real risk of a thin-file consumer? By factoring in additional insight and information from alternative data for a more comprehensive assessment. To learn more about millennial credit activity, read ID Analytics’ white paper Millennials: High Risk or Untapped Opportunity.