Used vehicles are increasingly popular with car shoppers — especially those with good credit, prime and super prime borrowers, according to a recent report from Experian.
In the third quarter of 2019, more car buyers with credit scores in what Experian considers the prime or super prime range — think roughly 661 or higher on a scale of 300 to 850 — took out loans for used vehicles than at any point since the third quarter of 2009, according to data from Experian’s State of the Automotive Finance Market.
Over the past five years, the credit profile of borrowers taking out used car loans has improved, as the chart below shows.
Want to know more?
- Why are buyers with better credit opting for used cars?
- What can you do if you’re in the market for a vehicle?
While we don’t know for sure why people with prime and super prime credit are increasingly turning to used vehicles, the latest Experian data may provide a couple of clues.
- Consumers are borrowing more for all auto loans. In the third quarter of 2019, the average loan amount for a new car was $32,480, compared to an average loan amount of $20,466 for a used car, according to the report. The amount financed for new cars was up 16.83% from the third quarter of 2014. For used cars, the amount financed was up 10.1% over the same period. So, while borrowing for a car is getting pricier overall, the cost of borrowing for used vehicles has risen at a slower pace. Consumers may be trying to save money by going used.
- There’s a bigger inventory of used cars to choose from. Experian states that the increased availability of late-model vehicles could be a factor in the rise of used-car loans. People might opt for a late-model used vehicle rather than buying new because they think they’ll get many of the same features at a lower cost.
Whether you’re in the market for a new or used vehicle, rising car prices might make you wonder how you’ll afford your next vehicle. Arming yourself with some basics about auto loans before you visit the dealership could get you in the fast lane to car-buying success.
- Understand how car loans work. If you don’t have much credit history or have credit that needs work, it’s a good idea to do some research on the basics of car loans before you buy.
- Determine what kind of auto loan you need. If you choose the right loan for your situation, you may be able to save money, get a car that works for you and work on building a healthy credit profile. The Consumer Financial Protection Bureau has information on auto loans that can help you get started.
- Shop around for the best auto loan rate for you. Before you walk into a dealership, shop around for a loan. You might be able to find a loan with terms you like ahead of time and apply for preapproval.