Car Buyers Borrow More for Longer Periods, Experian Study Shows

Jack R. Nerad | May 27, 2021

America's car buyers are extending themselves and their credit more than ever before as they buy new vehicles. At the same time, a larger proportion of U.S. buyers are being shut out when it comes to new-car buying. Those are the key conclusions drawn from the just-released 2021 State of the Automotive Finance Market report from Experian, a major finance information reporting service.

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This year consumers are borrowing more money in their pursuit of SUVs and other higher-cost vehicles. For the first quarter, the average new-vehicle loan amount was $35,392. That's up from $33,833 in the same quarter last year. The average monthly payment on a new-car loan was $577, up $7 from the same period a year ago

As the amounts borrowed have grown, the creditworthiness of the borrowers has increased as well. The average credit score of a buyer getting a new-car loan in the first quarter of this year was 734. In the first quarter of last year, it was 728. 

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Those with very good to excellent credit scores continue to be the largest proportion of those getting new-car loans, and the trend is accelerating. 

Consumers with prime and super-prime credit represented 64.88% of total financing, compared to 60.56% a year ago. At the same time, lower-income consumers with poorer credit scores are less likely to purchase new cars with an auto loan. The percent of new-car buyers with sub-prime credit scores dipped to about 17%, a new low. With the appealing incentives on new vehicles during the first quarter (prior to the semiconductor microchip shortage), and rising used car prices this year, prime credit consumers opted to select and finance a larger proportion of new cars versus used cars than in 2020.

In terms of overall trends, used-car financing mimicked the movements on the new-car side. The average used-car loan increased to $22,375 this year from $20,689 in last year's first quarter. The average monthly payment for a used vehicle increased to $413 from $394 in the first quarter of last year. Average credit scores for used-car buyers increased to 663 from 655 in the same timeframe in 2020.

Loan Terms Grow Longer - Find the best car deals!

The average term for a new-vehicle loan hit 69.5 months, up slightly from 69.03 months in 2020. On the used side, the increase was more marked, up more than one month to 65.74 months from 64.54 months year-over-year.

Experian said the biggest reason for the increases in both the new- and used-car loan amounts is the American car buyers' continued love affair with high-cost SUVs. In its analysis, the firm said that it expected that the trend to higher loan amounts would continue throughout 2021. This is due to higher used-car prices and continued supply disruptions pressuring inventories on the new-car side.

"Affordability will likely continue to remain a prominent topic in the industry as we move through 2021," Melinda Zabritski, Experian's senior director of automotive financial solutions, said in a statement. "As the industry continues to navigate tight inventory and other potential disruptions, ensuring that lenders and dealers are able to meet consumers' needs will require staying close to the data to make the most strategic decisions."

Experian is the source of information for this article. It was accurate on May 27, 2021, but it may have changed since that date.

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