Even with the rising prices of new vehicles, it’s not proving to be a problem for consumers who are more than willing to extend their loan terms. Thanks to the national average federal interest rate sticking near 0%, incentives offered in March and April, and consumers who stayed motivated to buy, a rough start to the second quarter of 2020 didn’t hold the auto industry down for long.
Loan Terms Rise, Payments Remain Stable
As the auto industry has seen time and time again, many borrowers are payment shoppers. To cope with the rising selling prices of new cars, buyers are stretching their loan terms further and further to obtain the latest and greatest models.
According to Experian’s State of the Automotive Finance Market report covering Q2 2020, the average monthly payment for new vehicles was $568 – only $18 more than this time last year. On the other hand, the average selling price of a new car has increased from around $32,000 to just over $36,000 year-over-year.
The average loan term for a new vehicle reached 71.54 months, as reported by Experian. For borrowers with credit scores under 660, average loan terms are around 72 to 74 months.
Longer loan terms and lower interest rates are likely the reason for this loan term/selling price imbalance, but consumers aren’t likely to complain about being able to more easily afford the cars they need with great rates.
Longer loan terms are proving to not be a deal breaker, and interest rates are projected to stay low for now. With this being the case, we may see loan terms continue to rise.
Interest Rates Not Expected to Rise Anytime Soon
On September 16, the Federal Open Market Committee (FOMC) of the Federal Reserve voted to keep interest rates near zero – between 0% and 0.25%. This move is meant to help support the drained U.S. economy, which is still recovering from the impact of COVID-19 shutdowns earlier in the year.
In June, many Fed officials forecasted that short-term borrowing rates are going to remain unchanged through at least 2022. This low interest rate projection means that dealerships could see an uptick in consumers who are looking for a great low rate when it comes to financing.
On the flip side, a large chunk of auto loans typically going to subprime and deep subprime consumers is slowing.
As of August, the unemployment rate stood at 8.4%, according to the U.S. Bureau of Labor Statistics, which doesn't bode well for deep subprime loans. Many people who previously sought these loans are feeling the sting of joblessness – unable to meet lender income and employment requirements to get the vehicles they need.
Subprime Borrowers Need Cars, Too
Despite low rates and great incentives this year, subprime car loans hit some record lows. In the second quarter, deep subprime auto loan and lease originations fell to 2.98%, the lowest it's been since Experian began tracking in 2007.
However, this isn't likely because everyone’s credit scores improved during the coronavirus pandemic. Subprime lending seems to be taking a hit as a result of the unemployment rates reaching record highs – borrowers aren't able to get approved for financing while collecting temporary income. Bad credit borrowers with gaps in employment history aren’t likely to gain a car loan approval, either.
Since many subprime lenders require their borrowers to have held the same job for at least six months to a year, often with no large gaps between employment, many consumers have lost the job stability that's required thanks to the statewide shutdowns across the country. With states opened back up and borrowers regaining employment, they need dealerships that can accommodate their credit.
Subprime borrowers need you now more than ever. You can take advantage of the lower interest rates to draw in these new consumers. With this loyal customer base, your store can increase the sales of your used vehicles and gain lifelong prospects.
Draw In Auto Sales Leads Now
Even though subprime and deep subprime lending has slowed, these consumers need dealerships like yours to stay vigilant when it comes to offering auto loans. Many of these consumers are finding themselves considering a vehicle purchase for the first time in a long time as public transportation takes a hit amid the COVID-19 pandemic.
Here at Auto Credit Express, we want to bring prospects through your doors. We provide several services that your store can take advantage of to pull in sales through the remainder of 2020 and beyond.
Whether you need help contacting motivated buyers through our BDC call center, are looking to offer loans to fresh bankruptcy leads, or just need a new mailer to get your name out there, we can be the solution.
We've been an award-winning lead provider for over 20 years, and we're ready to send consumers through your showroom doors who are ready to buy, not just shop. Subprime borrowers are motivated and loyal to those who help them get back in the swing of things when it comes to auto financing.
If you’re ready for highly qualified leads that are driven to buy, then start the conversation by filling out our contact form or getting a hold of one of our dedicated sales reps by contacting us at 888-535-2277.