Open Lending Research Uncovers Near- and Non-Prime Consumers’ Automotive Financing Hopes and Doubts

Rhea-AI Summary

Open Lending Corporation (NASDAQ: LPRO) has completed a study on vehicle accessibility and automotive financing perceptions among near- and non-prime consumers, with 69% planning to pay off their loans early and one-quarter of 2023 used car buyers spending more than $600 on their monthly car payment. The findings highlight opportunities for lenders to engage creditworthy near- and non-prime consumers, with the full report set to be released in February. The report builds on Open Lending’s 2023 Vehicle Accessibility Index and delves deeper into the near- and non-prime segment, surveying 1,042 U.S.-based consumers. Initial findings show proactive debt management among near- and non-prime consumers.

Insights

Market Research Analyst

The proactive approach of near- and non-prime consumers in managing auto loans, as indicated by a substantial percentage aiming to pay off their loans early, suggests a shift in consumer behavior towards more responsible credit management. This behavior could potentially lead to a lower risk profile for this segment over time. Financial institutions might consider adjusting their risk assessment models to account for this trend, potentially expanding their customer base within this demographic.

The fact that a quarter of used car buyers are committing to monthly payments exceeding $600 reflects a robust demand in the used car market, despite the economic challenges. This demand could signify a revenue opportunity for lenders specializing in near- and non-prime markets, as well as for companies in the automotive industry that cater to this customer base. However, the sustainability of such high payments in the face of economic uncertainty could be a concern for default rates in the future.

Financial Analyst

Open Lending's focus on near- and non-prime consumers is particularly relevant given the current economic climate of high interest rates and vehicle prices. By providing data-driven insights into this market segment, Open Lending could enhance its value proposition to financial institutions looking to mitigate risk while capitalizing on the untapped potential of near- and non-prime borrowers. The anticipation of the full report release in February could influence Open Lending's stock as investors seek to understand the potential market expansion and revenue growth opportunities.

The information provided by such studies can be critical for investors evaluating the automotive finance sector. It offers a granular view of consumer behavior and risk, which is essential for forecasting loan performance and assessing the future profitability of companies like Open Lending. Investors will be interested in how these insights translate into Open Lending's strategic initiatives and their impact on the bottom line.

Economist

The study's implications on vehicle affordability and access among near- and non-prime consumers reflect broader economic issues such as income disparity and the cost of living. The willingness of these consumers to take on substantial monthly payments for vehicle ownership underscores the necessity of a car for employment and personal mobility in many regions. This necessity can drive consumer spending and influence broader economic activity, particularly in the automotive sector.

However, the economic vulnerability of near- and non-prime consumers to market fluctuations, such as rising interest rates, poses a risk to the sustainability of their debt management and the overall health of the auto loan market. Lenders and policymakers may need to consider measures to ensure that vehicle financing remains accessible without leading to financial distress for consumers or increased default rates for lenders.

Sixty-nine percent of near- and non-prime consumers plan to pay off their loans early, with one-quarter of 2023 used car buyers spending more than $600 on their monthly car payment

AUSTIN, Texas--(BUSINESS WIRE)-- Open Lending Corporation (NASDAQ: LPRO) (“Open Lending” or the “Company”), an industry trailblazer in automotive lending enablement and risk analytics solutions for financial institutions, has completed a study on vehicle accessibility and automotive financing perceptions among near- and non-prime consumers. As high interest rates and vehicle prices create affordability barriers, the findings show how lower-credit consumers approach car ownership and manage debt, highlighting opportunities for lenders to engage creditworthy near- and non-prime consumers. The full report will be released in February.

This year’s report builds on Open Lending’s 2023 Vehicle Accessibility Index, which explored the barriers to vehicle ownership and how owning a vehicle impacts consumers’ opportunities and livelihoods. For 2024, the report digs deeper into the near- and non-prime segment, which comprises consumers significantly impacted by vehicle accessibility.

Open Lending surveyed 1,042 U.S.-based consumers who fall within either the near-prime (i.e., credit score of 620-659) or non-prime (i.e., credit score of 580-619) credit tier. Initial findings from the survey include the following:

• Near- and non-prime consumers are proactive about managing debt. Sixty-nine percent plan to pay off their loan early.
• Interest rate hikes and high vehicle prices are pushing near- and non-prime consumers out of the market. Twenty-five percent of near- and non-prime consumers are paying over $600 per month for a used car they purchased in 2023, up from the 8% who purchased one between 2020 and 2022.
• Generation Z near- and non-prime consumers are more selective about automotive loans and reluctant to take on debt. Sixty-one percent of those aged 18-42 have a term limit of 48 months or less, compared to just 42% of those aged 43-68.

“Near- and non-prime consumers have hesitations and doubts around the automotive lending process, and that’s not something lenders should simply accept,” said Matt Roe, Chief Revenue Officer at Open Lending. “Financial institutions and lenders can garner trust by making the process more transparent and accessible. By analyzing broader, alternative data to measure creditworthiness, lenders can offer loans to a more diverse pool of borrowers. And when lenders have more data and information about their customers, they can provide an experience that fosters continued loyalty.”

Open Lending has focused on the near- and non-prime consumer for over two decades, resulting in deep expertise and experience in this segment’s challenges and opportunities. Many near- and non-prime consumers are creditworthy but overlooked by lenders, creating a missed opportunity for financial institutions and deserving borrowers. Through research and analysis, the Company aims to empower automotive lenders to serve more consumers while growing ROA and achieving yield targets.

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To learn more about Open Lending, visit openlending.com.

About Open Lending

Open Lending (NASDAQ: LPRO) provides loan analytics, risk-based pricing, risk modeling, and default insurance to auto lenders throughout the United States. For over 20 years we have been empowering financial institutions to create profitable auto loan portfolios with less risk and more reward. For more information, please visit www.openlending.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240123194356/en/

Alison Smith for Open Lending

openlending@ink-co.com

Investor Relations Inquiries

openlending@icrinc.com

Source: Open Lending Corporation

FAQ

What study did Open Lending Corporation complete?

Open Lending Corporation completed a study on vehicle accessibility and automotive financing perceptions among near- and non-prime consumers.

What percentage of near- and non-prime consumers plan to pay off their loans early?

69% of near- and non-prime consumers plan to pay off their loans early.

How many 2023 used car buyers spent more than $600 on their monthly car payment?

One-quarter of 2023 used car buyers spent more than $600 on their monthly car payment.

When will the full report be released?

The full report will be released in February.

How many U.S.-based consumers were surveyed for the study?

Open Lending surveyed 1,042 U.S.-based consumers for the study.