Prime consumers lean toward used vehicles

LAS VEGAS — Consumers with prime credit scores are showing an increased appetite for the used-vehicle market, a continuing trend that first emerged earlier in the year, according to Experian’s third-quarter State of the Automotive Finance Market report.

With loan terms and monthly payments at an all-time high, prime consumers are responding to affordability discussions by opting for used-vehicle purchases, Melinda Zabritski, Experian’s senior director of automotive financial solutions, told Auto Finance News.

“When you look at used-car loans, it typically is split 50% prime, 50% outside of prime,” she explained. “Now, with more prime buyers moving into used, it’s making the used-car market much more prime.”

Experian defines a “prime” borrower as having a credit score between 661 and 780. Borrowers with a credit score between 781 and 850 are considered “super prime.”

In fact, prime borrowers choosing used-vehicle loans inched up to 60.88% in the third quarter of 2019, an increase from 59.87% in the prior-year period. Super prime consumers choosing used vehicles jumped to 44.75% — a record high — compared with 42.63% the previous year. Yet, analysts covering the auto finance industry still are predicting consistent SAARs forecast over the next several years, Zabritski said.

“Some of these consumers might be adding to their households as well, picking up an older vehicle and adding it to their household fleet,” she said. “So far it doesn’t appear to be having any kind of impact on new-vehicle sales.”

The percentage of new prime borrowers choosing to lease new vehicles also notched up in the second quarter of 2019, to 36.1% from 34.8% year over year. Overall leasing penetration rate for the market clocked in at 30%.

“These are consumers that are going to come back into the market in three years,” Zabritski said. “And, of course, also what’s feeding that shift into used vehicles is that inventory of late model used cars.”