Open Lending extends coverage to 2012 cars

When financing older vehicles it's not the years but the mileage, according to one actuary.

Open Lending, which develops default insurance for auto lenders, announced in February that its coverage would support loans for 11-year-old vehicles — two years older than the previous cap.

Open Lending's research found a 9-year-old vehicle and an 11-year-old model with similar mileage pose a similar risk, Chief Revenue Officer Matt Roe told Automotive News. And so while his company has expanded the eligible pool of vehicles based on age, it has retained a 150,000-mile cap on mileage.

Open Lending calculates age using the vehicle model year and the current calendar year; for example, a lender using its program in 2023 could finance vehicles through the 2012 model year.

Roe said affordability and supply chain issues were driving consumers to older vehicles. S&P Global data cited by Open Lending indicates customers with sub-640 credit scores in 2022 financed vehicles averaging 6.4 years old — a year older than what they were buying in 2020.

Experian data also shows an increase in the overall percentage of loans for 9- and 11-year-old vehicles during that time. In 2022, 9-year-old vehicles made up 5.2 percent of loans, up from 3.9 percent in 2020 and 3.3 percent in pre-pandemic 2019. Eleven-year-old vehicles appeared in 3 percent of loans, up from 1.9 percent in 2020 but down from 3.2 percent in 2019.

Overall,18 percent of used-vehicle loans in 2022 involved vehicles 9 years or older, up 1 point from 2020 but down 1 point from 2019. Eleven percent of used-vehicle borrowers financed models at least 11 years old, down from13 percent in 2020 and 14 percent in 2019.

The entire U.S. fleet has grown older as well. The average light vehicle on the road was 12.2 years old in January 2022, up nearly two months from a year earlier, according to S&P Global Mobility. It was the fifth straight year the average age had increased, S&P Global Mobility said.

Open Lending observed more 10- and 11-year-old vehicles on dealership lots, according to Roe.

"Dealers have to have a lender that'll accept a loan on that," said Roe, whose company primarily works with lenders who partner with franchised dealers.

Roe said his company asked itself: " 'What are [lenders] really worried about?' "

Lenders fear a customer with an older model will suffer a breakdown he or she can't afford to repair and decide to default. But that risk isn't a function of vehicle age, Roe said.

"It's the mileage, right?" he said.

Open Lending's last age eligibility increase occurred in 2016, when it raised the cap to 9-year-old models from 7-year-old vehicles and increased the mileage cap to 150,000 miles from 100,000.

A high proportion of lenders have adopted Open Lending's program featuring the new age range, Roe said. He said instances where lenders hadn't switched likely stemmed from a need to update an internal policy, not uncertainty over the merit of the change.

"For the most part, it's been very well-received," he said.