By: Luke Dodson
Millennials (18 to 36 year olds) worry excessively about their student loan debt and emergency funds. These facts were confirmed by an Allstate/National Journal Heartland Monitor poll and a survey carried out by Businesswire in the year 2015.
So, you’d think they must be barely making through each month.
Yes and no.
They’re having a hard time indeed, but don’t mind spending where it matters.
For instance, car ownership. Millennials’ share of the new car sales rose from 18% in the year 2010 to 28% in 2015 (Source: J D Power). Experts predict that this figure will go up to 40% by the year 2020. They aren’t faring too badly when it comes to used car purchases either, and are lapping up all those out-of-production crossovers (Source: Edmunds.com).
Considering that more and more millennials are buying new/used cars each year, and more than 80% of all new cars and 50% of all used cars are financed in the US, Walletpath was curious how this market segment was doing in the car loans department. Were they availing new or used car loans? How much were they paying in car loan payments each month and will they refinance if they were offered better rates today? After all they’re doing all they can to reduce their monthly spend!
What was conceptualized as a basic survey resulted in a detailed questionnaire, and unearthed several interesting facts about this generation. Let’s take you through some of them.
The Walletpath survey revealed that 76% of the surveyed millennials are spending less than $400 on their car loan repayments each month (55% pay less than $300 p.m.) and 68% may refinance their car loans today if provided better rates and more information.
Very few, only around 6% are opting for longer loan terms of 84 months; 60 months or lesser are still the most popular auto loan terms with these borrowers.
Other key findings were:
69% had taken car loan after May 2012
74% had bought cars costing $20,000 or less
60% had taken car loans at interest rates higher than 3%
80% were aware of their credit scores and around 58% have a credit score higher than 600, steering them clear off the sub-prime territory
44% don’t know about auto loan refinancing
61% don’t keep a tab on the market conditions and their credit score to see if they can refinance
65% would readily refinance their car loan if were offered a rate cut of 2% or less. More than half of the surveyed people would settle for a rate cut of 1.5% or less.
Majority of them are buying used cars and aren’t spending over $20,000 on new/used car purchases
Millennials seek value in whatever they buy. They prefer compact and cheap new/used cars for their transportation needs. Of the people surveyed 57% had bought used cars, while 43% had opted for new cars. This is very much in line with the last 10 years’ trend across the United States.
The Walletpath survey further found that even if millennials did buy new cars, majority of them spend less than $20,000 on them, which is almost like buying a used car. The average transaction price of the used cars hovered between 16k and $18k from 2010 to 2016 (Source: Edmunds Used Vehicle Market Report Q1 2016); so a $20,000 new car sounds like a fairly reasonable deal.
As regards the transaction price of their purchased cars, as also highlighted above, close to 75% of the surveyed millennials had bought cars costing less than $20,000, majority of which were used cars.
But they took their car loans at higher rates than today
As millennials are known to normally window-shop well before making any purchasing decision, Walletpath had hoped that the surveyed people would’ve availed car loans at good rates. However, it found that 60% of the ones who remembered their car loans’ interest rates, are paying well over 3% per annum.
The auto loan interest rates have fallen over the years and the average refinance interest rate on the new and used car loans is below 3% today. The refinance rates applicable in different US states and cities can be found using this Refinance Auto Loan Rate Finder.
80% knew their credit scores and 58% have a score higher than 600; so they’re clear off the sub-prime category, and the chances are high that they might get a better deal if they go out looking for it today.
Regardless, millennials are the smart generation indeed!
It isn’t that the millennials are called the smart generation for no good reason. They spend their money wisely and ensure there’s enough left to take care of their future needs.
Walletpath found that despite paying over 3% interest, 76% of the surveyed millennials are spending less than $400 on their car loan repayments every month. 52% are paying less than $300 p.m. Looking at their earnings across the US, millennials are making anywhere from $18,000 (in Montana) to $43,000 (in District of Columbia) in salaries per annum (Data Source: Minnesota Population Center’s 2014 American Community Survey Integrated Public Use Microdata Series). In view of their average monthly income, even if they spend $300 p.m. on their car loan repayments, they’re left with ample to take care of their other basic needs.
So, will they refinance?
68% of the respondents showed potential that they might refinance their car loans today if they were offered a lower interest rate and more details. In fact, 65% would settle for an interest rate drop of 2% or less.
When asked about their reason for refinancing, 44% went with ‘Interest rates have dropped.’
To sum up
Even though millennials aren’t financially very savvy or don’t take keen interest in market conditions to reduce their monthly car loan payments, the findings say that the majority of them had taken car loans at expensive rates and that they’d readily refinance if given a better deal and more information today. The survey discovery that 36% would use the resultant savings to pay off their other debt and 23% towards the other family needs confirms that they’re indeed struggling on the personal finances front.
Walletpath conducted a 15-question survey across 1,000 individuals to analyze how much are millennials spending on their car loan repayments each month and if they’ll refinance these loans. The survey was conducted online, inside the United States by the market survey firm PollFish, on behalf of WalletPath, on May 16, 2016. The survey participants were millennials in the age bracket of 18-36 years, who were born after January 1, 1980 and had taken a car loan.