Melinda Zabritski, head of Automotive Financial Insights at Experian (LON:EXPN), said preliminary third-quarter data points to an auto market increasingly shaped by affordability pressures, older used vehicles, longer loan terms and rising competition among lenders.
Speaking at an industry event, Zabritski said Experian’s analysis covers consumer retail activity rather than fleet transactions and combines vehicle registration and title data with consumer credit-file information. While new-vehicle sales remain a relatively small portion of total retail transactions, she said the market continues to adjust as consumers face substantially higher vehicle prices and financing costs than they did before the COVID-19 pandemic.
Older Used Vehicles Gain Share
About 25% of vehicles purchased by consumers during the third quarter were new, Zabritski said, while used vehicles accounted for the majority. Late-model used vehicles, defined as current model year through three years old, represented 14.4% of purchases and remain in high demand, particularly as dealers seek off-lease inventory.
However, the fastest-growing segment was vehicles that were at least nine model years old, which accounted for nearly 44% of purchases. Zabritski said roughly half of consumers buying those older vehicles have prime credit quality, prompting more lenders to consider financing vehicles that are 10 to 12 years old.
The average age of a used vehicle sold across the market reached 11.6 years, compared with lower average ages at franchise dealerships. The aging vehicle population is also creating demand for maintenance and aftermarket services, she said.
Cash purchases have become more prominent in the used market, particularly for older vehicles. In contrast, cash represented about 17% of new-vehicle sales, while leasing remained relatively stable at approximately 23% to 24% of new-vehicle transactions.
Lenders Compete for Market Share
Banks have returned as the largest provider of total auto financing, Zabritski said, after captive finance companies gained share during the vehicle-inventory shortages of recent years. Still, finance companies have been gaining market share, particularly in used-vehicle lending.
The top 25 lenders account for more than 60% of all auto financing, according to Zabritski. She said the new-vehicle market remains heavily dominated by captive lenders, although finance companies and credit unions have also been expanding activity.
Competition has intensified in used lending among banks, finance companies and credit unions. Zabritski said some lenders have become more creative with dealer programs as they seek additional volume. Banks are also looking more closely at borrowers in the near-prime and subprime credit tiers, particularly consumers with credit scores in the 620-to-660 range.
While average credit scores for auto buyers remain historically elevated, Zabritski said scores have declined modestly for new-vehicle borrowers as more subprime consumers return to the market. Deep-subprime borrowers remain a small share of the market, though their share has increased.
Payments, Loan Amounts and Terms Continue to Rise
Affordability remains a major issue, Zabritski said. The average new-vehicle loan amount approached $44,000 in the third quarter, while the average used-vehicle payment reached $548. The average payment on a new-vehicle loan was $773.
Nearly 19% of new-vehicle loans carried monthly payments above $1,000, up from 18% in the prior quarter, she said. Pickup trucks were especially prominent in that category, with the Ford F-150 identified as the leading vehicle associated with payments above $1,000. The average payment for a pickup truck was $1,001.
Longer loan durations have become a key mechanism for reducing monthly payments. Average terms were 69 months for new vehicles and 68 months for used vehicles. Loans with terms of 73 to 84 months accounted for nearly one-third of both new- and used-vehicle financing, while loans extending beyond 84 months are also increasing.
Zabritski said longer terms are generally associated with newer used vehicles rather than very old ones, indicating lenders are managing vehicle-age risk. However, loan-to-value ratios rise as terms become longer, with average LTV ratios around 133% for loans with terms of 85 months or more.
EV Sales Decline While Hybrid Demand Expands
Electric vehicles accounted for less than 8% of new-vehicle sales in the third quarter, returning to roughly their level before tax incentives, Zabritski said. Hybrid vehicles, meanwhile, represented nearly 17% of new-vehicle purchases, reflecting what she characterized as a consumer response to fuel prices.
EVs continue to be leased at higher rates than the broader market, with leasing representing nearly 32% of EV transactions. Zabritski said the market will see a growing supply of off-lease EVs, with EVs expected to account for 12% of off-lease vehicles this year and 18% next year. She projected a major wave of off-lease EVs in the third quarter of 2027.
She said EV residual values have not held up as well as those of other fuel types, but lower prices could make late-model EVs more accessible to consumers who otherwise could not afford a newer vehicle. Tesla represented 51% of used-EV sales, while Experian expects used-EV retail volume to reach roughly 520,000 to 540,000 vehicles for the full year.
Total outstanding automotive balances stood at approximately $1.6 trillion, rising about 2% year over year. Zabritski said 60-day delinquency reached 0.97% of auto loans and leases, though the year-over-year rate of increase has slowed. Growth in outstanding balances has been concentrated among near-prime, subprime and deep-subprime borrowers.
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