Near- and Non-Prime Consumers Face Shrinking Access to Automotive Financing in 2023, Open Lending Research Finds
Open Lending Corporation (NASDAQ: LPRO) ("Open Lending" or the "Company"), an industry trailblazer in automotive lending enablement and risk analytics solutions for financial institutions, today released its first Near- and Non-Prime Consumer Update, a quarterly proprietary data report on automotive lending trends in the near- and non-prime credit segments.
Using data on new and used vehicle loan originations, interest rates, sales and more, the report illustrates how current macroeconomic and automotive market trends shape vehicle accessibility for consumers with credit scores below 699. These trends provide critical insights for automotive lenders on how to serve near- and non-prime borrowers while managing risk and exceeding ROA targets.
"Between high interest rates and increased vehicle prices, car ownership is out of reach for many underserved but qualified consumers today ? an obstacle that makes it difficult to build a better life. For automotive lenders, this is an opportunity to engage near- and non-prime borrowers and start long-term, mutually beneficial relationships," said Matt Roe, Chief Revenue Officer of Open Lending. "At Open Lending, we've been keeping a pulse on this market for over twenty years and are excited to start sharing quarterly insights that automotive lenders can use to drive vehicle accessibility with AI-powered decisioning and risk analysis while building resilient portfolios."
Key findings from the report include:
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Near- and non-prime consumers face diminishing access to automotive financing.
In the third quarter of 2023, used car originations for near- and non-prime borrowers fell 33% year-over-year. Comparatively, used car originations for prime borrowers fell 22% year-over-year.
Additionally, the Federal Reserve's rate increases have disproportionately impacted near-and non-prime borrowers. By the second quarter of 2023, near- and non-prime registrations decreased by 7,000 for every basis point increase in the interest rate. Prime registrations, on the other hand, continued to rise steadily despite the rate increases.
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Among near- and non-prime consumers, Chevrolet is the top choice for new car purchases, but Ford stands out as a leader in the used car market.
Understanding the make and model preferences of near- and non-prime consumers is critical in making informed lending decisions, managing risk, and remaining competitive in an increasingly crowded market.
In the second quarter of 2023, Chevrolet ranked first in new car purchases by near- and non-prime consumers. But Ford was a formidable opponent in the used-car market, where the two automakers tied for most used cars sold in the second quarter of 2023. The data indicates that Chevrolet and Ford have appealed to the near- and non-prime market, more so than their competing OEMs, and are planting the seeds for customer loyalty in this segment.
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Electric vehicle ("EV") financing lags dramatically among near- and non-prime consumers.
While cost is the primary reason near- and non-prime borrowers often don't consider EVs, the lack of charging infrastructure also contributes to inaccessibility. Low-income communities have far fewer total chargers per capita, while high-income communities have the most. While the "charging deserts" that exist in low-income neighborhoods need to be addressed, it is important for automotive lenders and dealers to keep an eye on EV sales and data in this segment, as tailoring EV financing to these customers could drive a more diverse borrower base.
Read the full report and sign up here to receive quarterly Near- and Non-Prime Consumer Updates from Open Lending.
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.
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