Millennials’ appetite for auto loans has grown at a faster rate than Gen-X borrowers at the same age points, according to a study released yesterday by TransUnion.
Millennials — who have as much as 24% of the purchasing power in the United States — are different than other generations in terms of their auto purchasing habits. “We expected millennials to not be as interested in lending, in used cars, and so forth,” but “millennials — relative to Gen-Xers at the same age — are actually more active in [auto] borrowing and leasing,” Ezra Becker, TransUnion’s senior vice president of global research and consulting, told Auto Finance News.
Even with rideshare and carshare options on the rise, millennials opened new auto loans between the ages of 21 to 34 at a 21% higher rate than Gen X borrowers when at the same age, according to the study.
“There is this idea that millennials are living down in the city, they don’t need a car to get to work … but that is not necessarily the case,” he said. “It’s expensive to live in Manhattan, unless you have 17 roommates,” so many millennial consumers are based outside of major cities, where the cost of living is relatively low. Additionally, because public transportation can be unreliable and time consuming, many of these younger professionals choose to take cars to work instead.
Another reason millennials might be more interested in taking out auto loans — as compared to Gen Xers when at a comparable age — is the availability of longer-term loans, he added. “It used to be that a 16-month term was the biggest term you could get, and if you couldn’t afford … a five-year loan, you weren’t getting a car,” Becker said. “Now, six- and seven-year loan terms are more commonplace.”
Finally, technology may also play a part in making millennials into the consumers they are. “In the old days, before widespread internet shopping … you went to your local dealerships, and you looked for cars that work for you, and if you didn’t find it, you didn’t find it.”
Today’s car-shopping experience is much different. “Now, there are tons of internet shopping sites for cars,” Becker said. “Millennials, growing up in a digital era, are very comfortable with that form of shopping.”
This trend — of catering to a consumer’s particular tastes — is expected to continue, even as millennials are overtaken by Generation Z. “I think that we are in an era that is very much ‘consumer-first,’ and that we will just become more-so for Gen-Z,” Becker said. “They will expect much more customized, personalized experiences.” In the future, “lenders will almost certainly do more customizing and profiling,” he added.
For more content like this, check out the 17th annual Auto Finance Summit, which will take place on Oct. 25-27 at the Wynn Las Vegas. To learn more about this year’s event — or to register — visit the Summit’s homepage here.