Subprime Borrowers Boost Auto Lending
Dec 21st, 2011 @ 1:25 PM by Amber Nelson
The automotive lending pipeline has started to open up again for borrowers with less than stellar credit. According to new reports, car loans for subprime buyers, or those with credit score between 550 and 620, have risen substantially this year, indicating a revival of lending among that market segment.
Information from CNW Research and Experian, as reported in a CNBC article, shows that the number of car loan approvals for those with poor credit have jumped up 15.72 percent already this month over the whole month of November, while approval for individuals with good scores rose just 1.36 percent from last month.
What is even more noteworthy is that subprime loan approvals have risen 53.9 percent this year compared to last year. Experian reports that actual purchases of new vehicles to subprime buyers was up 14.8 percent during the third quarter of 2011.
Subprime borrowers are also paying less now than they were a year ago, with the average monthly payment falling $19 to $457 during the third quarter.
This subprime segment was a portion of the population that basically could not qualify for a car loan for the several years after the financial crash, but now lending standards have eased enough to allow them back in the market. And this trend could be the result of fewer auto delinquencies and charge-offs which are making lenders more confident in extending a wider credit net.
The growth in subprime lending has helped lead to a roughly 1 percent increase in total car sales this year, prompting credit bureau TranUnion to predict steady sales growth throughout 2012.
“It’s not double-digit growth,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit, quoted in an AutoNews article, “But it’s growth.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.