With affordability remaining top of mind throughout the automotive industry, new data shows the average loan amount “for new and used vehicles decreased in Q3 2023, an optimistic sign that things are continuing to level out for vehicle shoppers. ”
According to Experian’s State of the Automotive Finance Market Report: Q3 2023, the average new vehicle loan amount “was $40,184, down from $41,543 in Q3 2022.”
By comparison, from Q3 2021 to Q3 2022, the average new vehicle loan amount “increased $3,698. On the used vehicle side, the average loan amount was $27,167, down $1,517 year-over-year.”
In addition to decreases in average loan amount, “the average monthly payment for new and used vehicle loans only experienced modest increases.”
The average monthly payment for “a new vehicle only increased $25 year-over-year, reaching $726, while the average monthly payment for a used vehicle only increased $4 to $533 over the same period. The average interest rate for a new vehicle was 7.03% in Q3 2023, up from 5.26%. The average interest rate for a used vehicle was 11.35%, up from 9.38% last year.”
Melinda Zabritski, Experian’s Head of Automotive Financial Insights, said:
“While we’ve seen the average loan amount for new and used vehicles rise over the better part of the last three years, it’s a welcome sight to see average vehicle loan amounts decrease. Once you factor in monthly payments remaining relatively stable despite rising interest rates, the industry seems to be heading in a positive direction, especially with consumers having more options available to them during the financing process.”
New vehicle shoppers continue to opt for shorter-term loans
In Q3 2023, shoppers financing a new vehicle “continued to opt for shorter loan terms. For example, 13.40% of new vehicle loans had terms in the 1- to 48-month category, up from 9.99% the previous year. Similarly, new vehicle loans with 49- to 60-month terms reached 17.16% (up from 16.50% in Q3 2022) and new vehicle loans with 61- to 72-month terms reached 38.65% (up from 36.67% in Q3 2022). Meanwhile, new vehicle loans with 73- to 84-month terms decreased from 35.11% in Q3 2022 to 29.15% this quarter.”
Much of the shift toward shorter-term loans can be “attributed to new vehicle shoppers securing lower interest rates. For instance, loans up to 48 months offered an average interest rate of 4.03% in Q3 2023, while the average rate for 49- to 60-months was 5.67%, followed by 61- to 72-months at 7.24%, 73- to 84-months at 8.80%, and 85+ at 8.81%.”