Prime auto loan borrowers lean toward the used car market

The auto finance market is finding its footing. But, affordability pressures are changing consumer behavior in surprising ways. In Q3, even Prime and Super Prime borrowers, the backbone of the new car market, chose used vehicles more often, according to Experian’s State of the Automotive Finance Market Report.

By the numbers:

• 66% of Prime borrowers financed a used vehicle last quarter, up from 65.47% last year.

• Among Super Prime borrowers, 48.92% chose used, a rise from 47.96% in 2023.

This uptick is likely tied directly to cost:

• The average amount financed for used vehicles dropped $1,195 year-over-year to $26,091, while monthly payments fell $18 to $520 – coinciding with declining transaction prices.

• For comparison, new vehicle financing climbed $736 to $41,068, with payments reaching $737 — a modest $5 increase, which makes sense given the sticky nature of new car prices.

• Despite a rebound in vehicle inventory and lower interest rates (from 7.09% to 6.61% year-over-year), new vehicle prices are still too high for many. 

One thought bubble: Borrowers who might have stretched to buy new cars are now probably wary — fearing rising delinquencies and negative equity risks. Delinquencies also drive up costs for lenders, who must allocate more reserves to cover potential losses, impacting their ability to offer competitive terms.

• 30-day delinquencies rose from 2.91% to 3.09% year-over-year.

• 60-day delinquencies climbed from 0.92% to 0.96%.

Bottom line: The combination of these forces is straining the entire system, creating a feedback loop where affordability challenges limit buyer participation, rising delinquencies increase lending costs, and dealer operations are disrupted by a shrinking pool of well-qualified buyers. Yet — with more Federal Reserve interest rate cuts forecasted for 2025 — automaker incentives could shoot up even further — easing affordability.

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