Credit Unions Continue to Lead Used Vehicle Market Share

With the automotive finance market continuing to fluctuate over recent years, it seems credit unions remain resilient in the used vehicle space.

Experian’s “State of the Automotive Finance Market Report: Q3 2023” showed credit unions continue to capture the largest share of the used vehicle market at 30.30%, a slight dip from 32.03% in Q3 2022. They were followed by banks at 27.31% – a decrease from 28.23% last year – and captives at 9.60%.

It’s noteworthy that among the three lenders, credit unions offered the shortest term and lowest rate for used vehicles in the third quarter of 2023 – coming in at 68.44 months with an 8.60% rate. By comparison, captives offered vehicle shoppers terms on average at 69.02 months and a 10.20% rate, while banks offered 68.91 months with a 10.41% rate.

Looking at new vehicle financing, captives reached 59.18% in Q3 2023, up from 44.74% in Q3 2022. Banks trailed behind, going from 25.85% to 22.21% year-over-year while credit unions dropped from 24.38% to 13.18% over the same period.

Some of the shifts in new market share can be attributed to captives offering incentives amid higher interest rates. For instance, captives offered the shortest term and lowest rate for new vehicles in Q3 2023, coming in at 65.62 months with a 6.14% rate. Meanwhile, credit unions gave consumers 73.16 months and a 7.13% rate, while banks offered 70.27 months with an 8.15% rate.

Consumers Continue to Opt for Shorter Terms

When analyzing loan terms at a broader level, lenders should keep in mind that consumers are choosing shorter terms overall for both new and used vehicles – potentially due to the lower rates they’re able to secure, specifically for new vehicles.

In Q3 2023, new vehicle loans in the one- to 48-month category increased to 13.40%, from 9.99% the previous year. Additionally, new vehicle loans with 49- to 60-month terms went from 16.50% last year to 17.16% this quarter and 61- to 72-month terms increased from 36.67% to 38.65% over the same period. On the contrary, new vehicle loans with 73- to 84-month terms declined from 35.11% last year to 29.15% this quarter and 85-plus months decreased from 1.72% to 1.64% in the same time frame.

Consumers choosing new vehicle loans up to 48 months secured an average interest rate of 4.03% in Q3 2023, while loans in the 49- to 60-month category generally came with a 5.67% rate. This was followed by 61- to 72-month loan terms at a 7.24% rate, 73 to 84 months having an 8.80% rate, and 85-plus months at an 8.81% interest rate this quarter.

On the used side, loan terms from one to 48 months increased to 11.03% in Q3 2023 from 10.49% in Q3 2022, while 49- to 60-month terms went from 18.93% last year to 17.36% this quarter and 61- to 72-month terms increased from 41.75% to 42.01% in the same time frame. Meanwhile, used vehicle loan terms from 73 to 84 month declined from 29.57% to 27.19% year-over-year and 85-plus months remained the same at 0.84% this quarter.

Despite shorter loan terms also increasing for used vehicles, the interest rates still have a higher average, notably caused by the concentration of subprime borrowers.

In Q3 2023, the average interest rate for one- to 48-month loan terms was 12%, and the rate for 49 to 60 months was 10.66%. Additionally, 61 to 72 months had a rate of 11.97%, 73- to 84-month terms were at a 10.71% rate and 85-plus gave a 9.05% rate this quarter.

Prime Continues to Make Up Majority of the Market

It’s important to note that prime and super prime consumers with a credit score between 661 and 850 made up over 68% of total financing this quarter. For example, prime borrowers went from 47.43% last year to 45.90% this quarter, but super prime grew from 19.16% to 22.82% year-over-year.

With credit unions typically focusing on the used vehicle and prime market, leveraging this data and taking into consideration what consumers are looking for when financing a vehicle can give them the opportunity to properly assist shoppers and search for ways to gain overall market share.

Melinda Zabritski is the Head of Automotive Financial Insights for Experian.