Near- and Non-Prime Consumers At Risk of Being Priced Out of the Vehicle Market, Open Lending Research Finds
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Insights
The report by Open Lending Corporation highlights significant shifts in automotive lending patterns, particularly among near- and non-prime consumers. The decline in used vehicle registrations for this demographic suggests a market contraction which could signal challenges for auto lenders targeting this segment. However, the rise in near- and non-prime EV registrations indicates a growing market for electric vehicles among consumers with lower credit scores.
From an industry perspective, these trends may influence lending strategies. Financial institutions might consider revising their risk assessment models to accommodate the apparent willingness of near- and non-prime consumers to embrace EVs. This shift could lead to a broader financing ecosystem that supports the transition to more sustainable transportation options. Furthermore, the increased interest in leasing among these consumers could indicate an adaptation to high interest rates, which lenders could capitalize on by offering more tailored leasing options.
Open Lending's focus on AI-powered risk analysis and default insurance-backed lending could be a game-changer for financial institutions. By enabling more accurate loan decisioning, lenders can potentially reduce default risks while expanding their customer base. This approach could lead to more competitive loan products for near- and non-prime consumers, potentially increasing market share for proactive lenders.
The reported increase in monthly payments despite a drop in average vehicle prices reflects a squeeze on consumer affordability, likely impacting loan performance and default rates. Lenders need to monitor these dynamics closely as they could affect the profitability of loan portfolios. Additionally, the overall economic improvement mentioned may not be evenly distributed, suggesting that lenders should be strategic in targeting consumer segments that are showing recovery.
The automotive lending trends reported have broader economic implications. The discrepancy between vehicle pricing and monthly payment trends could suggest a lag in the transmission of price adjustments to consumers, which may stem from persistent high interest rates. This lag could dampen consumer spending, which is a critical driver of economic growth.
The increase in EV accessibility for near- and non-prime consumers is positive for economic inclusivity and could support environmental policy goals. However, it is essential to consider the long-term affordability of these vehicles, as higher financing costs could undermine the sustainability of this trend. The report hints at the resilience of certain consumer segments despite macroeconomic challenges, which could be indicative of untapped market potential.
Lending enablement provider releases quarterly data report on near- and non-prime automotive lending trends, potential for EV access
Near- and non-prime consumers are at risk of being priced out of the automotive market entirely. Tracking these trends can help automotive lenders position themselves to serve deserving yet overlooked consumers. Key findings from the study include:
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Used near- and non-prime registrations are down double digits year over year. Near- and non-prime registrations declined
10% in 2023, while prime and super-prime stayed flat. - Vehicle prices may be starting to come down, but monthly payments are not. While the average vehicle price dipped year-over-year in Q4 2023, the average monthly payment rose, with near- and non-prime consumers taking on a larger payment hike than prime and super-prime consumers.
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EVs may be starting to become accessible to consumers outside of prime. New near- and non-prime EV registrations grew
161% , and used EV registrations saw almost100% growth year-over-year in the fourth quarter. - Near- and non-prime consumers are showing a renewed interest in leasing, likely as a means to offset high interest rates and monthly payments.
“The economy is slowly improving, but high vehicle prices and interest rates are putting lower-credit consumers in a tough position, where access to personal transportation is often prohibitively expensive,” said Kevin Filan, SVP of marketing at Open Lending. “Data shows there is more to these consumers’ borrowing potential than their credit scores show. By bringing them loan opportunities they can afford at a time of macroeconomic difficulty, automotive lenders can secure a stronger future for the automotive industry. Using AI-powered risk analysis and bolstered by default insurance, our Lenders Protection™ loan decisioning engine allows you to do just that.”
For more insights, access the full report.
Methodology
Data was sourced from S&P Global’s AutoCreditInsight™ tool, a business intelligence tool developed by TransUnion in partnership with S&P Global Mobility, looking at data on newly registered new and used vehicles. Registrations with no VantageScore® 4.0 associated were excluded. Open Lending defines near- and non-prime as a VantageScore® 4.0 less than or equal to 659 and prime and above as a VantageScore® greater than or equal to 660. Open Lending focuses on consumers in the 580-659 credit range.
Learn more about Open Lending at openlending.com.
About Open Lending
Open Lending (NASDAQ: LPRO) provides loan analytics, risk-based pricing, risk modeling, and default insurance to auto lenders throughout
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Source: Open Lending Corporation
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