Various methods are available for new- and used-vehicle buyers to finance personal transportation: Finance the total amount, pay cash, pay part in cash and finance the balance, lease, receive as a gift, or use home equity. Low interest rates and relatively easy credit in the past few years have helped the auto industry experience four years of growth (see the 8 July 2013 issue of Automotive News). This Segment Summary focuses on households that have financed vehicles in total or in part.

Demographics

Households that have financed their vehicle purchase in total and households that have financed in part look somewhat the same: Household heads typically are married, own their own home, and have dependents. Households that finance in total are somewhat younger than those that have financed in part; those that finance in part tend to have higher household incomes than do households that finance in total.

• The mean age for household heads (HHH) who finance in total is 48, in comparison with a mean age of 50 for HHH who finance in part.
• The mean annual household income for households that finance in total is $73K, in comparison with $89K for those that finance in part.
• A higher proportion of college graduates and postgraduates exist among households that finance in part (46%) than among those that finance in total (27%).
• The majority of HHHs in both populations are married (61% who finance in total and 62% who finance in part).
• The majority of HHHs in both populations own their own home (74% who finance in total and 78% who finance in part); for the majority, home is a single-family dwelling in the suburbs.

Financials

Households that finance in part have more diversified assets and have accumulated higher assets than have households that finance in total.

• Households that finance in total are no more likely than all household to own many financial products; they are significantly less likely than all households to own CDs, money market mutual funds, stock or bond mutual funds, and publically traded stocks.
• Households that finance in part are significantly more likely than all households to own savings accounts, US Savings Bonds, money market deposit accounts, custodial accounts, education savings accounts, and publically traded and nontraded stocks.
• The mean net worth of households that finance in total ($268K) is about two-thirds the amount for households that finance in part ($401K).
• Two-thirds of households that finance in total use "other" finance or credit companies; 45% use a vehicle-finance company.
• Two in five households that finance in part use a vehicle-finance company; almost seven in ten use "other" finance or credit companies.

Financial Attitudes

Differences in life stage help to explain why households that finance in total are concerned about debt: Slightly more than one-third have children between the ages of 0 and 17, and the presence of dependents often results in more financial trade-offs.

• Households that finance in total are significantly more likely (57%) than all households to be concerned that they have more debt than they should; only 41% of households that finance in part share this concern.
• Households that finance in part are more likely to consider using a bank for a loan than are households that finance in total.
• Roughly two in five households that finance in total are worried they will be unable to secure a loan when they need one.
• The majority of households that finance vehicles in whole or in part agree they would never secure a personal or auto loan with a variable interest rate (85% and 83%, respectively).

Interesting Tidbits

• Almost two in five households that finance in total are struggling to make ends meet; almost half are financially stable right now; only 8% are financially secure.
• One-quarter of households that finance in part are struggling to make ends meet; one-half are financially stable right now; about one-quarter are financially secure.
• Although both household populations are more likely than average to do so, households that finance in total are more likely than households that finance in part to apply online for a vehicle loan or lease (14% and 11%, respectively) and to obtain a loan or lease (8% and 6%, respectively) online.
• Households that finance in total are significantly more likely than average to buy vehicle insurance online; almost one-quarter (23%) have done so in the past two years.
• The majority of all vehicle-purchasing households trust credit unions more than banks a great deal; they trust banks more than insurance companies; they trust consumer-finance companies least.

Implications

The purchase of a vehicle entails more expense than just the price of the vehicle itself. In addition to having a monthly payment, households that finance must also anticipate higher taxes (such as sales tax and personal-property tax) and increased insurance premiums. For the majority of households, these expenditures may be consequential, particularly if the household is juggling competing family demands. Most households continue to monitor their expenses and debt closely; online comparison shopping makes it easy to find the lowest price for products the households perceive to be a commodity. Technology innovations will change the vehicle-finance and -insurance industries in the next few years. What changes do self-parking cars portend? How will the adoption of driverless cars affect vehicle-loan and -insurance providers? Forward planning on the basis of customer knowledge will grow in importance.