As new and used car prices soared last year, Americans borrowed more than ever to afford them. That has finally come to an end.
In the first quarter of 2023, TransUnion reports, “Average amounts financed for new vehicles have stabilized” compared to the first quarter of last year. Used car loans “have seen a decline of 6.3%.” The credit reporting agency released its quarterly Credit Industry Insights Report today.
The price of the average new car was almost flat in June, while used car prices fell slightly.
Monthly payments remain historically high, the report says. Used car borrowers in the first quarter took on a monthly payment 2.4% higher than last year. New car borrowers saw their monthly payments increase by 9.1%.
But most of that increase came last year. “Increases have mostly stalled over the past two quarters,” researchers write.
Leasing, meanwhile, appears to be starting a comeback. Twenty-one percent of newly registered vehicles were leased in the first quarter, researchers say.
Leases have historically made up about a third of new car sales. But at the height of the COVID-19 pandemic, leasing fell to as low as 19% of new car sales.
Many customers traditionally leased car after car. When one lease ended, they would roll into a new lease for a new car. But a lease contract typically includes a clause that lets the lessee buy the car for a price set when the contract was signed.
As prices soared, many found they could buy the car at the end of its lease for a pre-pandemic price lower than its current market value.
Many lessees took the deal, breaking the cycle of lease after lease.
That deprived car dealers of a traditional source of relatively new, lightly-driven used cars. The return of the traditional lease market could help stabilize the post-pandemic used car market.
