According to data from Dealertrack, access to auto loans for both new and used cars has deteriorated in recent months, with January numbers showing a decline compared to December and the previous year. This tightening of credit is hitting subprime borrowers particularly hard, with the share of subprime new-car loans falling to around 6 percent, about half of what it was before the pandemic.
Meanwhile, the average credit score for new-car shoppers taking out a loan or lease climbed to 743 at the end of 2023, up from 739 a year earlier. For used cars, the average score rose to 684, up from 681. This shift indicates that lenders are increasingly focusing on borrowers with strong credit profiles.
However, the rise in delinquency rates for auto loans, especially those that originated in 2022 and 2023, suggests that many recent borrowers are under significant financial stress due to higher car prices and borrowing costs. The average interest rate on a loan for a new car reached 7.18 percent at the end of 2023, up from 6.08 percent in 2022.
Our Opinion:
For alternative lenders, these trends present a unique opportunity to fill the growing gap in the auto financing market. By offering flexible and innovative lending solutions, these companies can cater to borrowers who may not qualify for traditional loans due to tighter credit standards or higher down payment requirements, which have risen from a typical 10 percent to nearly 15 percent in recent months.
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