Customers Shun New Cars For Used Cars Thanks To Car Finance
16 Dec 2019
Approx Reading time: 3 minutes
- The upsurge in car finance demand for used cars
- Car finance costs on the rise
- New cars lease on the rise
Demand for used cars continues to hit record highs in the U.S. Amidst the unexpected increase, prices for second-hand cars have also started to tick higher. The growth is forcing consumers across the U.S to turn to car finance in a bid to finance their new purchases.
Used Car Sales Demand
Data by Experian Automotive indicate an upsurge in used car and truck loans. Demand for car finance hit record highs in the third quarter for the first time since the peak of the recession. People are increasingly going to used cars on struggling to meet the asking prices for new cars that also continue to increase by the day.
The data also shows that customers with high credit scores accounted for the most significant share of used car loans in the third quarter at about 51%. While some of the customers could qualify for car finance for new cars, most of them are opting to go for used cars instead.
Amidst the upsurge in demand for used car loans, the average cost for vehicle loans also appears to be ticking higher. The average cost of car finance for new cars increased by 3.8% to $32,480 according to the Experian data in the third quarter as car loans for used cars increased by 2.3% to $20,466.
Used cars payment terms
Buyers currently have to pay an average of $393 a month for car finance. Given the high monthly payment, some buyers have opted to increase the total term of their loans in a bid to get a much lower monthly payment. The risk of lowering monthly payment is, however, becoming increasingly evident.
People paying their car finance much slower stand the risk of paying more than what their car will be worth after some time, especially with used cars. In the long run, such buyers may struggle to sell or trade-in their cars without paying out the difference.
Some car finance providers are also refusing to offer car finance of seven years or more, especially when dealing with used cars. The refusal is based on the fact that the finance providers feel it will be a bad deal to consumers. The risk of issuing such long-term loans is also significantly high compared to issuing short-term car finance with high monthly payments.
Nearly-New Used Cars Segment
People shunning new cars given their high price tag have also given rise to a new segment in the auto dealership industry. The so-called is nearly new used cars are increasingly flooding the market, consequently helping address the market need.
The nearly new used cars are mostly made up of 3-year old cars and trucks being turned in after the end of their leases. After being turned in, the cars are reconditioned and resold while certified as pre-owned.
In addition to an increase in demand for used cars, it is also emerging that customers are increasingly leasing new vehicles. Immediate data indicates that 36.1% of prime plus customers leased up new vehicles in the third quarter up from 34.8% a year ago. Customers are increasingly turning to lease in a bid to enjoy a much lower average monthly payment.