Leasing continued to rise in Q3, strengthening captive lenders

Average loan rates continued to cool down in Q3 but subprime buyers continue to face challenges in the post-pandemic lending market.

Driving the news: Experian’s quarterly State of the Automotive Finance Market report tracked some small but noteworthy shifts in the lending landscape during the July-through-September period.

• Captives, lending institutions operated by the vehicle manufacturer, continue to dominate the car loan sector, remaining the largest lender type throughout Q3.

• However, their grip on the market is starting to loosen. Captive market share (new and used) slid from 30.02% in Q3 2023 to 29.13% in Q3 2024. Banks and financing firms on the other hand saw some growth, achieving marginal gains of 0.53% and 1.95% respectively.

Zooming in: Despite the slight decline in market share, captives remain well off thanks to major leasing incentives.

• Leasing share among Prime customers continues to rise, with 31% of Prime+ shoppers choosing a lease in Q3. This is up moderately from last year’s 27%.

Behind the scenes: While Prime buyers are driving growth across all loan types, Subprime shoppers are still struggling.

• Subprime and Deep Subprime combined now account for 15.54% of all loans. In 2019, Subprime and Deep Subprime share represented 19.45% of the market.

• Even on the used car side, buyers are facing challenges. Subprime share is down roughly 4% from 2019 in the preowned loan market.

Looking ahead: That said, some factors are either improving for buyers while others are becoming less volatile.

• Interest rates for new vehicles are on the decline, shifting from 7.09% last year to 6.61% during the last quarter.

• Meanwhile, monthly new car payments are almost completely flat, rising just $5 from 2023 levels.

Bottom line: Although challenges remain, the financing market is showing signs of improvement compared to the post-pandemic landscape. This is giving buyers a slight but much-needed reprieve, which may help fuel demand in the coming months. And with more inventory and lower federal interest rates, lenders will likely relax their underwriting criteria slowly.

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